Since ancient times, humans have organized large-scale events to commemorate and celebrate important moments in life: from the Dionysian festivals of ancient Egypt to various European arts festivals, from the ancient Olympics to the three major modern sports events, social life is filled with a rich variety of activities. In the new century, large-scale events have received even greater attention, with official cultural and arts festivals emerging one after another, and corporate exhibitions and investment promotion activities taking the stage. When large-scale event projects are well-executed, they can generate positive impacts socially, culturally, economically, and politically, yielding both social and economic benefits. However, if improperly organized or if unexpected incidents occur, the consequences can be unimaginable. How to avoid such problems, identify potential risks, and take appropriate measures is an issue worthy of attention.
I. Current State of Risk Management for Large-Scale Events in China
Risk management for large-scale event projects in China is primarily experience-based, lacking guidance from advanced theories. Although standardized documents on risk management have been developed, they are mainly applied in industrial and commercial enterprises, with limited use in event projects. The first series of books on event project management was published in October 2002, including Management of International Large-Scale Events, Management of Project Fundraising Activities, and Management of Large-Scale Event Projects, which were pioneering but lacked systematic research on risk management. Government departments implement a policy of "whoever approves is responsible" for the entities bearing risks in event projects. Overall, China's event industry started relatively late in applying modern risk management ideas and techniques, and there remains a significant gap compared to developed countries, mainly reflected in the following aspects:
1. Incomplete internal control systems and imperfect risk management organizational structures; there is no independent risk management department or system in the modern sense. Compared to international requirements for internal control systems of event management organizations, it still lags behind.
2. Insufficient quantitative risk management. Quantitative management and modeling are important trends in risk management technology in Western developed countries. Currently, China's event industry is still very weak in quantitative risk management.
3. A severe shortage of management talent. Risk management for event projects is a highly technical and complex emerging management discipline, requiring personnel to possess high qualifications and undergo rigorous professional training; otherwise, it is difficult to understand the nature of project risks and even harder to take appropriate preventive measures.
4. China's intermediary service institutions are underdeveloped, and there are few institutions capable of undertaking event projects and effectively managing risks.
II. Risk Identification and Evaluation for Large-Scale Event Projects
Risk management is about enabling event organizers to maximize benefits under the lowest risk, or minimize risk under a given benefit. Through this mechanism, major risks can be discovered and assessed, and corresponding countermeasures can be formulated and implemented to keep risks within an acceptable range. Risk management is an important component of large-scale event project management, and establishing an efficient risk management system is the foundation for ensuring the healthy and sound development of the event industry.
Risk identification includes determining risk sources, conditions under which risks arise, describing risk characteristics, and identifying possible events that may affect the project. The first step in risk identification is processing information sources, which can be objective or subjective: objective sources include past experience in event project management and documents describing the current project's progress, such as WBS plan analysis; subjective sources are based on the judgment of experienced experts. Risk identification methods include:
(1) Expert Opinion Method. This uses experts' experience and judgment to obtain predictive values. Specific forms include: ① Group discussion method. Collective discussion, exchanging views, complementing each other's strengths, and leveraging collective wisdom to make predictions. ② Individual estimation aggregation method. Each expert provides a prediction independently, and the project manager synthesizes the results to draw conclusions. ③ Delphi method. Developed by the RAND Corporation in the late 1940s, it uses systematic procedures with anonymity and iteration: first, form an expert panel, submit survey outlines and background materials to experts, and repeatedly solicit opinions before aggregating the prediction results.
(2) Flowchart Method. The flowchart method first requires establishing a master flowchart and sub-flowcharts for the project, which are used to display all activities of project implementation. Flowcharts can be represented using network diagrams or WBS (Work Breakdown Structure).
(3) Site Inspection Method. During the risk identification phase, the risk project manager's on-site inspection is very important. It can detect risks that technical analysis cannot predict. Especially for cultural performance projects, the risk manager should directly observe various facilities and operations on site to identify more and finer potential risks.
(4) IT Modeling Method. This method is suitable when the relationships between different factors are clear; it requires careful study of options and their uncertainties, and relies on reliable quantitative data. The disadvantage is that new suggestions may produce misleading results, and credibility is uncertain.
(5) Regression Analysis Method. This predicts the future based on analysis of past experience. Although the absolute level of risk indicated by this method is not high, it can identify certain risks that other methods cannot.
(6) Environmental Analysis Method. The project environment includes event participants, performers, competitors, and government regulators. When analyzing the project environment, special attention should be paid to the characteristics and stability of their interrelationships.
After using the above methods for risk identification, the analysis results should be organized and written into documents to prepare for the remaining steps of risk analysis and risk management. The results of risk identification include: risk sources and conditions under which risks arise, classification or grouping of risks, risk symptoms, etc., and should be as detailed as possible. Then, risk evaluation is conducted, shifting attention to the overall risk covering all project phases, the interactions and influences among risks, their impact on the overall project, and the project entity's capacity to bear risks.
III. Risk Handling Decisions for Large-Scale Event Projects
In event project risk management, there are generally four types of risk handling decisions: risk avoidance, risk mitigation, risk transfer, and risk retention. Each has its focus and advantages and disadvantages, so the specific method adopted in practice depends on the specific circumstances of the project risk.
(1) Risk Avoidance. Avoidance can eliminate risk factors; abandoning the project is the most thorough way to avoid risk. However, complete abandonment also brings negative effects, such as losing development opportunities and stifling the project's creativity. Changing or abandoning an ongoing project is extremely costly, so it is best to adopt an avoidance strategy before the project is implemented.
(2) Risk Mitigation. The goal of this strategy is to reduce the likelihood of risk occurrence or mitigate the adverse effects of consequences. Methods include education and procedural approaches. The education method involves educating relevant personnel on risk and risk management to reduce the incidence of project risks caused by improper behavior. The procedural method uses systems to regulate project activity management and reduce unnecessary losses. Various management plans, policies, and supervision and inspection systems generally reflect the objective laws of project activities; violations can lead to major mistakes. Additionally, rationally designing the project structure, increasing the number of alternative action plans, and improving the reliability of project components can reduce the incidence of risks.
(3) Risk Transfer. Risk transfer, also known as risk sharing, aims to transfer a portion of the loss to a third party outside the project through contracts or agreements in the event of a risk incident. It is important to note that risk transfer cannot reduce the probability of risk occurrence or the total losses caused by risks; the cost of this strategy depends on the size of the risk. This strategy can be adopted when project resources are limited and mitigation or prevention strategies cannot be implemented, or when the risk frequency is low but potential losses or damages are significant. Risk transfer mainly includes selling, subcontracting, exculpatory contracts, insurance, and guarantees.
(4) Risk Retention. Risk retention means that the enterprise or project itself bears the risk, using its own risk retention fund as a safeguard, so risk retention can be regarded as a financial strategy. The criteria for deciding whether to retain a project risk are as follows: the retention cost is lower than the insurer's additional premium; the project's expected loss is lower than the insurance company's estimate; the project has many risk units; the maximum potential loss and maximum expected loss are relatively small; the project has the ability to bear the maximum expected loss in the short term; and costs and loss payments are distributed over a long period, resulting in significant opportunity costs.