Managing risks in overseas new technology projects Oscar A. Osores Abstract
Managing risks for a new technology project implemented overseas can be seen as a high risk and difficult undertaken due to two main factors; dealing with new technology and working on a possibly unfamiliar environment; the key for managing these types of projects is using a dual risk management undertaken; managing risks in both project locations, integrating off shore stakeholders with the project leader abroad; in order to successfully plan, update and respond to the risks, it is critical for the project leader to be familiar with both the company culture as well as the countries’ culture and become the integrating keystone for developing a realistic project risk approach. Managing risks in overseas new technology projects Projects involving new technologies imply challenges and a number of new risks, some of them unanticipated and very hard to identify.
In addition, working overseas typically represents more risks sources for the project, because of the differences between the countries’ environments, legislations, working practices and cultural manifestations. Therefore, a successful risk management strategy needs to incorporate all the potential risks sources that can affect the project and perform an integrated analysis to evaluate its overall influence on the project results through each phase of the project’s life and develop the proper response to them. The proper risk management approach suggested in this article involves performing a dual integrated risk evaluation. The first risk analysis will be performed on the off shore portion of the project.
Here it is very important to incorporate all the project stakeholders and promote their participation during the risk planning, executing and monitoring stages. It is important having contingency plans specially developed including fall back alternatives, in the event that the technology does not deliver the anticipated results. The second risk analysis needs to be performed for the on shore part of the project. When working overseas, it is recommended to have a local company representative leading all the in country works. Outsourcing services can be contracted and used as required; but having a company employee knowledgeable of the company culture as well as the country’s characteristics it is critical to have true knowledge of the site conditions where the project works will take place.
The integrative risk management part consists in creating a common risk approach based on the on shore and off shore risk assessment results and effects and creating a single platform for managing the risks in the project. After this dual integrated risk evaluation is finished, the project risks can be fully identified, analyzed qualitatively and quantitatively and a proper response can follow. Continuous risk monitoring is very important to guarantee success of the risk management implemented strategy. Risk interaction potential is also high when combining new technologies and overseas works. As presented in the following pages, risks from different sources can interact and their combined effect can potentially create higher risks for the project. On shore risks can create additional off shore risks or increase their impact and probability and vice versa.
For example, a political risk in the country where the project is taking place can create financial (exchange rate) problems that can compromise the project’s assigned budget; in the effort of improving cost savings, cutting project costs can affect the quality assurance programs for the on and off shore parts of the works. This is just one of the scenarios that can occur when certain risk factors combine. These factors need to be taken into serious consideration and carefully analyzed when preparing the risk management strategy. The off shore risk strategy Past project records Companies always tend to revisit past project records and how they responded to previous problems in order to use that information and be prepared to future risks. While this information can be very useful for the new project and can assist the project team during the risk planning phase, we need to be very careful on how we analyze the past project information.
Risk managers sometimes mistakenly use hindsight as foresight (Taleb et all). Past events don’t necessarily have any relation with future problems, not everything can be predicted. One of the worst mistakes that can be made is focusing our attention on extreme scenarios and how they will affect our project (Taleb et all). This can distract attention and energy towards other possibilities. Project manager needs to focus on the consequences the events can cause and be prepared to face them and plan accordingly. When dealing with new technologies, historical information may not serve as a primary evaluation tool since completely new risks will likely arise.
It is still important to review the existing information and the lessons learned, since they will provide first hand guidance on the company’s risk tolerance, effective responses used and the past project resources familiar and experienced with risk management practices. This information is important when selecting the project team members; all team members should be prepared, know what to do when a crisis occurs and provide an agile response in accordance to the project risk management plan. Lessons learned from risk management practices used for previous projects shall be considered to train team members in effective risk management practices prior to the new project start. “Companies prepared for a crisis can gain a competitive advantage because they tend to recover faster than those who are not” (Fister, Sara).
Project stakeholders’ effective participation in risk management Having all the stakeholders participate, interact and communicate with those assessing and managing the risk has proved to be an extremely effective way to communicate risks. (Lundgren). Stakeholders’ participation is more effective when decisions concerning risks have not been made yet, and therefore, their input can be used to define the risk management strategy. Who shall participate? Participation from all stakeholders shall be promoted and encouraged by the project manager. Risks (not opportunities) are undesired events for our projects, this is the reason why management sometimes is not receptive to promote stakeholders participation when discussing project risks.
New technology typically adds risks to the discussion, decreasing the reception towards this stakeholder participation and increasing the tension during these risk planning meetings. Project managers need to listen to stakeholders’ advice about what should not be done and learn from failures. Risk management shall be looked at in the same way as profit making (Taleb). As stated before, early participation during the planning stage is ideal, but it should not be limited to the initial phases of the project. This participation needs to be continuous and can take multiple formats: workshops at certain project milestones completion or when moving from one phase to another, advisory committees during the project weekly and/or monthly meetings.
Keeping regular and continuous communication with all project stakeholders regarding risks, giving them direction of the response strategy towards the risks and the results obtained and providing a point of contact for additional information (Lundgren) helps ensuring on going participation and interest towards the project risks as well. New technology projects & risks New technologies have some inherent risks such as schedule delays, cost overruns, proto type and sub systems failures. The technology may completely fail or not meet the original expectations and goals. The risk management strategy needs to incorporate flexible planning for all the risks scenarios. These risks need to be identified and rated per their effect on the project (Lowe, Paul).
The most likely risks to arrive for new technology projects fall under the following three categories: Technical problems, technical difficulties can delay project manufacturing, engineering can reject certain project components due to lack of compliance with specifications and technical requirements can require budget increases, to mention a few potential risks. Market advantage is lost, result or product is not competitive, there is not enough market for the product as originally anticipated, competition secures the same or similar product prior to company launch. Assumptions changed, due to the raw materials price modification, labor issues and different exchange rates, among others.
Grouping the risks into categories is quite important and shall be the first stage after the risk identification process. First of all, instead of dealing with a large amount of isolated and unrelated risks, one at the time, grouping risks allows focusing and concentrating all the efforts into few groups and analyze possible interactions and combined effects of risks within those groups and in between groups; developing more effective risk responses and facilitating risk monitoring and control through the project’s life cycle. When the risk identification and grouping has finished, a risk matrix shall be prepared to assess the impact and probability of the risks.
This risk matrix should preferably be prepared per group of risks to assess the effect and importance of risks in each of the risk groups. The most important risks identified for the project can also be represented in a separate chart to show their overall effect on the project. Like mentioned before, flexible planning and multiple scenarios evaluation is the best strategy for dealing with risks associated with new technology projects. Contingencies need to be considered for the identified risk scenarios and revised continuously during each phase of the project. How to deal with the unknowns? Risk identification is performed in the same manner as any regular project. The add on is risk grouping. Unknowns will likely fall into one of the risk grouping categories.
If each category is properly defined and the risks and inter relations are carefully analyzed, the contingency planning will help dealing with these unknown risks as well. The effectiveness of the plan will definitely vary though, depending on the risk characteristics, but a first line of defense will be in place, instead of a work around. On shore risk strategy In country project leader role The in country project leader role is critical for project success including proper risk management during project life. Overseas development projects are exposed to a global marketplace, in which currently sufficient information is not always available but numerous uncertainties need to be considered. This is the main reason why risk management is much harder in overseas development projects.
The in country project leader shall preferably be a company full time employee from the geographic area where the new project will take place. His main role is to act as an intermediary between the efforts conducted off shore and the local works to make sure everyone is on the same page, the expectations are the same among all involved parties, and the local culture, regulations and practices are considered during the off shore project planning. Working closely with human resources such as the in country project leader enables the project manager to implement appropriate programs that address the culture, norms and characteristics of the country.
There are many potential threats that pose a serious danger to the company’s personnel, facilities, image, goals or means of profitability (Li). These threats can be low, medium and high. Medium threats can be very numerous and varied, such as hostile infiltration of labor, lock-ins, malicious violence, civil disturbances, sabotage, extortion, natural disasters, fraud (whether from suppliers or vendors), bombings, attacks against company facilities, product contamination and kidnapping (Li). High threats to a corporation include a campaign by terrorists against the company, or the outbreak of civil war or an enemy attack. Prior planning and preparation are the keys.
In order to defeat these threats, risk managers should be proactive rather than reactive and certain steps can be taken to avoid or minimize the effects of any of these crisis situations. The role of the in country leader is very important to identify these threats, their characteristics and also assess their impact on the project. The country leader is familiar with project practices both off shore and on shore so he or she has a unique perspective and point of view of risks that surround the project that can not be ignored and should be taken into serious account when evaluating the results of the risk response strategy while implementing the project overseas. Outsourcing Offshore outsourcing has grown exponentially in recent years.
This growth in the sourcing out of project components or the development of an extensive partnership relationship between a domestic firm and one overseas, has been fueled in large part by the significant cost savings (between 20% and 50%) that are enjoyed by firms that choose to outsource (Singh). Cost savings are only one reason why companies outsource overseas; there are some other strategic advantages that also promote the use of outsourcing, which will not be discussed in this paper. Sometimes outsourcing is not an option. Projects overseas require outsourcing certain parts of the projects due to government regulations and / or private companies’ norms.
As an example, when implementing new mining technology projects in Peru, it is required to outsource a certain percentage of the works to be performed and have a labor force containing a minimum amount of local workers (from the surrounding communities). This regulation is promoted by the Peruvian government and the mines; which are mostly international private corporations. The reasoning behind this outsourcing promotion politic is first to develop the areas and population surrounding the mine facilities, promoting local businesses, education and improving the living conditions of the population. The other important reasoning behind this regulation is what is denominated “social license”.
In order for an industrial operation to get the permits to function on a permanent basis, the local communities need to agree for the company to operate in the area where they live, after reviewing their environmental plan, safety plan and what benefits the new project will bring for the population while preserving their lifestyle. Therefore, when planning a new mining technology project to be executed in Peru, the criteria discussed in the previous paragraph needs to be presented early in the project life during the project planning stage. If this is not incorporated into the project planning and risk planning phases, it will definitely create schedule issues and budget issues for the projects. Details like these show the need and importance to have a company in country project leader.
These potential risks can not be identified and analyzed from the company headquarters. A local perspective is required to assess the impact and effects of these risks on the project development. Five major risks of outsourcing have been identified in recent years (Singh). The role of the in country project leader to assist risk management is discussed for each one of them. • Communication/cultural barriers The example shown above applies to this case and the risk mentioned below. This is typically the number one concern when working in overseas projects. Working at company headquarters, sometimes for international companies, we tend to believe that our management and work styles are the common practice around the world.
Overseas companies, vendors and organizations may operate in a very different cultural context, which can lead to misunderstandings (Singh). Differences in working language (English) and time zones can contribute to the risks. The importance of having a company representative, knowledgeable of cultural and working differences is invaluable to plan ahead and even remove these types of risks out of the project’s scenario. The local representative also provides more rapid communication of and resolution of issues that might arise between the parties and demonstrates a higher level of commitment and interest for the project (Singh). • Misunderstanding of requirements Unclearly defined or misunderstood requirements are a main cause of why projects fail.
While the requirements would be defined on the off shore part of the project, the level of detail and information delivered and shared with the outsourcing partner is very important for their work. The local representative also provides more rapid communication and resolution of questions and inquiries from the outsourcing firm, avoiding quality issues, schedule slippages and cost over runs that can occur due to issues with the requirements. • Quality assurance Quality shall be planned up front. Quality audits and inspections assist ensuring the outsourced product or service meets the requested specifications. Misunderstanding requirements will create quality problems as mentioned before.
Participation of the local representative will aid in rapidly resolving any quality related questions, inspect the work to make sure it meets the specifications and stay on top of any quality aspects of the project that need special attention. • Concerns about intellectual property security New technology projects involve specially developed intellectual property, and when outsourcing, it is critical to consider all steps to protect it. A dual approach is required here: an off shore non disclosure agreement shall be signed between the parties; after a careful vendor evaluation and the definition of the strategy to protect the company’s intellectual property.
The off shore approach shall be led by the in country lead representative. This person shall verify the process the outsourcing company uses to protect the confidential information. “Project managers can’t rely too heavily on contracts as a form of risk mitigation” (Wheatley). Managing the relationship with the outsource partner is more effective to protect the company’s intellectual property. Local management can be more helpful here since follow up can be done faster and more efficiently. • Differences in company infrastructure and processes All companies have particular processes and project methodologies that are used when developing a project.
These need to be understood prior to outsourcing parts of the project and the differences between the in-house processes and the external outsourcing approach need to be assessed in order to prepare a common approach during project development. The more involved the company is with the project, the more smoothly the project will go (Singh). The importance of incorporating an in country project leader proves to be critical here as well, to communicate with the outsourcing partner and/or development teams. “This person, as well as key stakeholders in the project, should be available to review progress reports, review finished deliverables, and be available for telephone conference.
If the vendor has questions related to your firm’s products and applications, which require answers in order to continue development, your local company contact is responsible for arranging for the proper technical resources to provide answers” (Singh). Global risks Local stakeholders’ participation More and more, local stakeholders are demanding to participate in how the project risks are determined and have a saying on which regulations and environmental norms will apply to a particular project. The suggested approach is to incorporate these stakeholders input during the risk planning process for the on shore portion of the project. Special care needs to be in practice to properly identify these on shore stakeholders, since they may be very large groups of people or organizations.
It is importantly to canalize their input and expectations through authorized communication channels and authorized representatives. The more numerous the stakeholders are, it is more likely to have too diverse risk approaches and it is harder to reach a common agreement and consensus. Returning to the example presented previously in this article, when planning a new mining technology project to be executed in Peru, local communities in the mine’s area of influence need to be considered for the project’s risk evaluation. The use of lands can be authorized and granted by the government authorities and all permits can be obtained through regular administrative channels.
However, if local stakeholders are not considered, the project will struggle as a result of continuous strikes, road blocks and similar activities that can cause deliverables delays, cost over runs and can compromise project execution, when safe access to the work site can not be guaranteed for the project workers. Political risks Political risks are defined as political decisions; political events or societal events in a country will impact the business climate, which lead to investors losing money or not make as much money as they expected when the investment was made (Li). Political risk includes “inconsistency in policies, changes in laws and regulations, restrictions on fund repatriations, and import restrictions” (Li). Li and Hoi (2006) suggest some clues for overseas development projects stakeholders to follow to reduce political risks.
First of all, when evaluate and select overseas development projects, the in country project leader shall assess the country’s political situation and its effect on the project development in the short, medium and long term; depending on the project’s expected duration. Short projects are preferred since the planning horizon is smaller and political risks shall only be considered within a reduced time frame. This is a very important decision point; since this will determine whether the project can be executed overseas or not. There are many specialized publications and advisors who study countries’ political trends as well as country risk indicators that can assist when making such decisions. Financial risks
One, if not the main purposes for all companies working overseas is to achieve financial rewards. But if these financial factors are not properly managed, can lead to project and business failure. Changes in the exchange rates, inflation and other economy indicators can affect project results severely. These events need to be discussed up front with the outsourcing partner and responsibilities shall be assigned in the event that these risks occur. Here the contingency approach is a good practice to be prepared when these eventualities happen. Following the country indicators can assist anticipating when financial risks can occur. This type of risks is also ssociated with the political risks, since political events can trigger changes in financial indicators and vice versa. There fore, these two types of risks shall be analyzed individually and together to assess their real effect on the project. Cultural risks When companies carry out overseas projects, a number of the project team members are people who come from different nationalities. Different culture, different language, different background and different perspective will difficult good communication between team members. It is never suggested trying to change the host country’s working practices and habits, but understand and appreciate local culture and embrace the local practices instead to obtain better results.
When an overseas project is going through its planning stages, cultural differences shall be identified and considered when defining the project scope, schedule, budget and quality metrics and guidelines. Low and Shi (2001) suggest that “overseas project manager with cross-cultural working experience is essential”. This knowledge will probably help them to avoid cultural misunderstanding between the project team members and prevent culture risks to arise. Dual risk management strategy Background Risk planning, identifying and evaluation for overseas projects is a very complicated, expensive and time-consuming process. This process is almost unreality for the majority of projects (He, 1999).
There have been many proposed models for overseas project risk assessment; a web-based system to continuously monitor various risks that arise through the life cycle of a project. Fuzzy logic approaches have been used too. Studies indicate that integrated risk management models are believed can help companies make better decision when carrying out overseas development projects. Companies should choose comprehensive models according to the real situation of their projects (Li). Dual management strategy The proposed dual integrated risk management strategy consists in two on going interactive risk approaches: off shore (at the company’s base location) and on shore (overseas, at the project site).
The on shore approach will contribute to the off shore analysis, providing a second analysis to assess the impact and probability of the already identified risk and will also incorporate more risks for the evaluation. The first step towards overseas new technology projects risk assessment is using company’s previous experience for selecting experienced project team members, provide guidance on risk assessment results from prior company projects and train them in the company’s risk management practices and company attitude towards risk. It is critical involving all stakeholders during the initial phases of the project; companies are sometimes reluctant to promote risk discussions.
In high risk projects, these discussions are sometimes believed to try to put a shadow on the project benefits, trying to sabotage the project. A solid project on the contrary shall be analyzed and evaluated against all risk sources and contingency planning must be enforced. However, these risks must be presented and analyzed objectively by all the stakeholders. Stakeholders’ participation shall remain active during the project duration. Project manager must ensure fluent communication of risk management results and have a point of contact available to address any questions and concerns regarding risks. New technology has some particular unique risks. These risks can be classified and grouped into main categories.
Grouping allows establishing more effective risk response strategies, assessing the individual and integrated risk effects, concentrating the efforts into the most important risk sources for the project. At this point, the project team is up to date regarding project risk management and the participation from the stakeholders has been secured. This has evolved into the off shore risk plan, unique risks have been identified, grouped and their importance has been determined by the project team. A risk matrix can be built based on the results known. The on shore risk approach shall be developed in parallel. The in country project leader is defined and this role is assigned and communicated within the project team.
Outsourcing is a common growing practice for overseas projects. The in country project leader has a key role when assessing the potential risks that outsourcing can add to the project. It is important to the project manager to work with the project leader regarding the outsourcing needs (optional and mandatory) for the project and how this can influence the project management strategy. Working overseas is also a source of unique risks, besides outsourcing; there are local stakeholders with diverse expectations for the project outcomes and sometimes very powerful influence that can delay and even cancel the project if not being properly considered.
Political and financial risks are a potential threat for the project and out of the company’s influence and control. Cultural risks can compromise project results as well. The in country project leader has also a major role to play here; cultural risks can be avoided through his participation. The on shore risk assessment, led by the project leader will develop into a risk plan that will update the off shore risk plan and become the overall risk management plan for the project. The newly identified risks shall be analyzed in conjunction with the off shore risks for combined effects. This analysis represents the integrated risk management strategy.
A final risk matrix can be prepared based on these risks and proper risk responses in accordance with the project requirements can be defined, executed and monitored through the project’s life. Conclusions and recommendations Past experiences with risk management and lessons learned shall be used whether the new project relates to prior projects or not. This information shall also be used for selecting risk management experienced team members and training them prior to project start. It is critical for any successful project risk management strategy to have all involved stake holders, both on shore and off shore participate during all project course. Participation needs to start early in the project life and risk communication shall be a project priority through the project’s different phases.
Risk workshops and review meetings are a good project practice. Sometimes there might be management and project team members’ resistance to these activities, but they need to be brought gradually into the company’s culture and incorporated into the project guidelines. New technologies carry risks of their own. Flexible planning and preparing contingencies for risk scenarios is the best pro active approach to face these risks. Grouping the risks into few main categories allow focusing attention and more effective and faster responses. The advantage of grouping is that the responses can also assist dealing with unidentified risks that would fall under the same category.
It is critical for risk management success to define the role of the in country project leader and select an appropriate person to occupy this position. This person will not only lead the on shore works and is the main contact overseas, but will be key for planning, analyzing, defining and monitoring the risk strategy and its effects on the project. The in country project leader plays also a major role when facing outsourcing risks. His participation is very important for all types of such risks; where knowing the culture, practicing fluid communication, paying constant attention to quality and proactively interacting with the both the company and the outsourcing partner can make a big difference.
Protecting intellectual property for new technology projects is a key task when working overseas, the outsource partner shall be not only very carefully selected, but also closely managed by the in country project leader, to prevent any information leaks to competitors or to prevent the outsource partner to become a competitor itself. Global risks and how they can affect the project also need the assessment of a project team member with experience and knowledgeable of the country where the project will be executed. Another important task for the in country project leader. Political risks can compromise the project itself or indefinitely delay it. Financial risks can compromise not only the project outcomes and project funding, but it can also seriously affect the company finances, creating big damage and can take the company out of business.
Cultural risks can impact the project and create schedule slippages and severe cost changes due to reworks, additional permits and other factors mentioned in the article too. Managing risks for overseas new technology projects can be a challenging task due to the high risks involved. Performing a dual analysis will allow on shore and off shore stakeholders (including team members) focusing on their main expertise areas. The integration will also combine the best characteristics of these two approaches into a common risk managing strategy. This dual approach facilitates identifying risks, categorizing them and develops concise plans that will facilitate the risk response implementation and continuous monitoring. References ? Fister, Sara (2008). The great unknown. PM Network. Volume 22, number 5.
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