Professional Documents
Culture Documents
Contents
Introduction ...................................................................................................................................... 4 Complexity of international projects .................................................................................................. 4 Risks associated with Overseas Developmental Project ..................................................................... 5 Political Risk and Response Strategy .............................................................................................. 5 Economic/Financial Risk & Response Strategy ............................................................................... 6 Cultural Risk & Response Strategy ................................................................................................. 7 Integrated Risk Management Model for Global Projects .................................................................... 7 Web-based Integrated Risk Management System .......................................................................... 8 Fuzzy Risk Assessment Model ........................................................................................................ 9 Conclusion......................................................................................................................................... 9 Bibliography ...................................................................................................................................... 9 APPENDIX ........................................................................................................................................ 11 Appendix-1 .................................................................................................................................. 11 Appendix 2 .................................................................................................................................. 12 Appendix 3 .................................................................................................................................. 13
Introduction
Due to globalisation, the world has become a smaller place and restrictions have reduced improving the business environment. In order to increase market share and financial stability, the scope of project management has increased as businesses are being conducted internationally in a more collaborative manner (lientz, 2003). Some of the recent developments are: Mergers and Acquisitions: Numerous projects have arisen due to mergers and acquisitions in various sectors such as pharmaceuticals, energy, banking, insurance, media, manufacturing, entertainment, etc. International agencies and non-profit organizations have increased their activity by increasing number of projects in different locations. Multinational companies are undertaking new projects in many countries to improve their profitability.
Internationalization of businesses has been possible due to progresses made in technology and transport system. It can be further summarized due to following factor such as a) Economies of scale, b) Standardisation of products & services and c) Advances made in technology, e.g.- internet, mobile communication, logistics capabilities, etc. The paper reviews the complexity of international project, classifies risks and risk management approach. Finally it lays emphasis on usage of integrated risk management model.
These factors impacts immensely and they may affect the project in the following ways: It may be a challenge to define the purpose of the project. Defining scope may also be huge task as scope needs to different in different countries. Creating project management structure may also be another issue. Issues such as how many project leaders should be designated, should there be only one or should there be different in different countries. Identifying, assembling and allocating team-members for roles for different countries may be cumbersome. Due to huge geographical distance and time difference, communication may be difficult and hence there may be delays in resolving issues. Issues resolving may further difficult as same issues needs to be tackled differently in different countries. Planning of project may vary in different countries because to differences in available technologies.
therefore change of leadership which may have an effect on project completion. Furthermore Ling et al, 2006, bought to light that government may change the policy to favour local organisations. The policies focus on decreasing foreign ownership or limiting foreign businesses to assume disproportional amount of risk. For instance, politicians of India in election year may pass unfavourable resolutions to restrict foreign organisations to show their interest in developing and nurturing local industries. Further the research conducted by Khattaba et al., 2007 indicated that political risks are major concern to Jordanians international projects in which it was observed that host-society & interstate risks were more riskier than host-government risks.
Response Strategy Various researches showed the difficulty of international projects to mitigate political risks as it is hard to forecast political risk. However Ling et al, 2006, came out with the suggestion for project stakeholders to reduce the impact of political risks. It may be put forward in the following points: Political hotspots must be avoid while evaluating and selecting project location To lessen the impact of possible political risks, shorter time-frame project should be given preference over longer duration project. Maintain good relationship with local government obtain insurance for political risks
Response Strategy Various researchers have suggested different mitigation strategies, they have been elaborated below: According to Ozorhon et al, 2007, the financial risks can be mitigated by making sure that contract between the firms are clearly stated and duties, responsibilities and liabilities of the firms are unambiguous. Risks such as interest rate fluctuation, inflation, tax-rate increase, foreign currency exchange rate, etc may be allocated to local party to diminish the effect. Wang et al,
2001 concurred that risk of currency fluctuation could be avoided by making a dualcurrency contract wherein some section of project could be dealt in local currency and other in foreign currency as per planning. According to Dey et al, 2001, some part of financial risks could be also be dealt as political risks, hence reduction in political risk may also mitigate financial risks.
Figure 1: Integrated risk management process (Han et al., 2008) Han et al., 2008 have grouped life-cycle of the project in five stages: a) b) c) d) e) Establishment of a project plan Bid preparation period Contracting Construction and Commissioning and operation
The risk management process has decision making capability from the bidding stage to project completion. The risk management system prepares extensive decision support models and calculates profitability of the project in different circumstances. It helps stakeholders to evaluate merits and demerits of going ahead with the project (Han et al., 2008).
Conclusion
The paper describes the importance of overseas projects due to globalization. It further investigates various risks of the global projects and the ways to manage them. Three risks categories (political, economical & cultural risk) and their response strategy were discussed in details. Among those political risk was quite difficult to manage because of its uncertainty and choosing a good location, project-type and maintaining good relations were important tools in managing the risk. Economic risk could be mitigated by having a proper contract and sharing the risk with local counterpart. Cultural risks could be mitigated by making sure that project manager has great cross-cultural skills. The individual should have good understanding and respect for local culture. Further it was analysed that dealing with individual risks differently is very cumbersome, complex and expensive, hence there is need for integrated risk management strategy. However, it is suggested that different projects in different countries have unique risks and should choose the risk management system accordingly.
Bibliography
Dey, P.K., and Ogunlana, S. O. (2004). Selection and application of risk management tools and techniques for build-operate-transfer projects, Industrial Management & Data Systems, Volume 104 Number 4 2004 pp. 334-346 Dikmen, I., Birgonul, M. T. and Han S. (2007). Using fuzzy risk assessment to rate cost overrun risk in international construction projects International Journal of Project Management, Volume25, Issue 5, July 2007, Pages 494-505 El-Sayegh, S. M.(2007). Risk assessment and allocation in the UAE construction industry , International Journal of Project Management, Article in Press lientz, B. and Rea, K. (2006) Project Management for the 21 st Century. 3rd ed. California: Elsevier, p.265-277. Han, S. H., Kim, D.Y., Kim, H., and Jang, W. (2007). A web-based integrated system for international project risk management, Automation in Construction, Volume 17, Issue 3, March 2008, Pages 342-356 Zhi, H. (1995). Risk management for overseas construction projects, International Journal of Project Management ,Volume 13, Issue 4, August 1995, Pages 231-237 Howell, L. (2001)., The handbook of country and political risk analysis (3rd ed.)., The Political Risk Services Group,USA
Kangari, R. (1995)., Risk management perceptions and trends of US construction, J Construct Eng Manage 121 (4).,pp. 422429 Khattaba, A. A., Anchorb, J. and Daviesb, E. (2007). Managerial perceptions of political risk in international projects, International Journal of Project Management, Volume 25, Issue 7, October 2007, Pages 734-743 Ling, F. Y. Y and Hoi, L. (2006). Risks faced by Singapore firms when undertaking construction projects in India, International Journal of Project Management, Volume 24, Issue 3, April 2006, Pages 261-270 Low, S. Ph., Shi, Y. (2001). Cultural influences on organizational processes in international projects: two case studies, Work Study, Volume 50 Number 7 2001 pp. 276-285 Miller, K. (1992). A framework for integrated risk management in international business, Journal of International Business Studies (1992).,pp. 311331 Ozorhon, D., Arditi, D., Dikmen, I. and Birgonul, M. T. (2007). Effect of host country and project conditions in international construction joint ventures, International Journal of Project Management Volume 25, Issue 8, November2007, Pages 799-806 Pheng, L. S., Leong, C. H. Y. (2000). Cross-cultural project management for international construction,International Journal of Project Management,Volume 18, Issue 5, 1 October 2000, Pages 307-316 Wang, S.Q., Tiong, R.L.K., Ting, S.K. and Ashley, D. (2000). Evaluation and management of foreign exchange and revenue risks in Chinas BOT projects, Construct Manage Econ 18 (2000)., pp. 197207
APPENDIX
Appendix-1
Figure 1: Risk Identification for overseas construction projects (Zhi, 1995)
Appendix 2
Figure-2: Influence diagram of country risk (Dikmen et al, 2007)
Appendix 3
Figure-3: Influence diagram of construction risk (Dikmen et al, 2007)