Managing risks in international projects
Almost every decision is made by man in under conditions of uncertainty i.e. lack of information on existing facts and likely future developments. This statement refers to a decision by the firm. The problem of managing risk exists everywhere that explains its continued relevance. The process of decision-making at all levels of management happens in a constantly present uncertainty. It is unclear, not exactly known situation, incomplete or inaccurate information about conditions of the project activity, which cause a partial or complete uncertainty of the final results of these activities and its related costs. The reasons for the uncertainty of project management with the most common approach are three main groups of factors: lack of knowledge, accident and opposition.
The first group of factors is a lack of knowledge, i.e., incompleteness, insufficiency of our knowledge and information, information about the external environment, environmental innovations related to its instability, and as a result of future events or expected effects of actions required for decision-making. On the other hand, incompleteness, insufficiency of our knowledge, information can be caused by skill restrictions of person who makes the decisions.
Suppose that we are confident in our business activity and all questions studied. In this case, the accident may intervene in our plans. The second group of factors is an accident, i.e., a future event that takes place in similar circumstances differently. For example it may be a failure of the new equipment, failure during using know-how or new technology, changes in the demand for innovation, increasing of prices, staff turnover, termination of supply, conflict of interest, fight for power and so on - all of this applies to accidental causes.
The opposite of accident is a significant event, which always happens. The third group is the opposition, that is, it may be the difficulties of sales due to the actions of competitors, the conflicts between contractor and customer, breach of the contract conditions by suppliers, labor conflicts in the team, unfair competition, staff turnover and other.
Project management to a greater extent than other activity of business is associated with risk, as the full guarantee successful results in it is virtually nonexistent.
The practice of project management under real market conditions requires reasonable decision-making related to the uncertainty. So, before you start elaboration solutions, you need to install the group type and kind of uncertainty you have to deal with it. But even the best-made predictions contain elements of uncertainty, i.e. risk. Therefore, any kind of analysis and evaluation should be conducted taking into account the risks and uncertainties.
The usual perception of risk as the possibility of loss is not always correct. In fact, it is a more complex concept. The risk means that the project can get and more than expected. Consequently the risk is unclear, uncertain environment, where is possible, both positive and negative result.
In such circumstances, the project manager has to act on the basis of certain assumptions about the possibilities of the situation in the future, based on past experience. We also assume that a careful study of required action, its implications and the environment in which it occurs is equivalent to obtaining the new information and the modeling of the situation, which should theoretically reduce uncertainty and increase the predictability of the ultimate result of the action.
At the same time, the study of the object itself or the qualifications of the manager can bring additional uncertainty due to imperfect used tool, error in analysis and modeling, qualification limitations, lack of sufficient computing facilities and capacity and so on. In connection with this analysis and taking into account the uncertainty and risks of investing involves in-depth study of as many uncontrollable factors as can that may affect the implementation of the project and the selection of the most efficient and cost-optimal methods and techniques of evaluation, analysis, accounting, management, reduction and optimization risks.
Risks of supply and sale of the project are determined, first of all, its technical features. In some cases, the project requires unique equipment and high-quality components and materials, which also require the development and exploration. Therefore, it is appeared a problem to the firm with supplier search to develop such unique resources for the project. When there are not such suppliers in the domestic market, the company has to look for it in the international market, which of course means additional costs and future risks associated with foreign economic activity.
This may also include the risk that suppliers will refuse commitments and the firm will not be able to organize the delivery of equipment, raw materials and components at prices that were discussed. Then the firm's costs of the project may increase significantly and the expected effect will be significantly reduced. It can happen in case where suppliers have not fulfilled their obligations regarding delivery times, quality of service, etc.
The risk of stopped or insufficient level of foreign investment is typical for situations when a project requires a lot of funds that the firm does have. In addition, the firm cannot attract investors, i.e., cannot interest them and convince a sufficient efficiency of the project.
In conclusion, the presence of uncertainty greatly complicates process of selecting optimal decisions and can lead to unpredictable results. In practice, in many cases, companies are trying to ignore the existing uncertainty and act (make a decision) relying on intuition. In other words, this is another risk that brings on company. Therefore, the choice of effective solutions without uncontrollable factors leads to a significant loss of economic, social and other character. Considering the uncertainty that is the cause of the risk of the project, it should be noted that the isolation and study of its related to the process of actions is essential, because it shows a practical situation when you cannot carry out these activities in an environment that cannot be clearly defined.