In Part I and Part II, we explored five ineffective strategies and two somewhat more effective strategies for managing risk. In this Part III, we complete our little catalog with three of the more effective strategies.
- Transformation strategies entail exchanging the risk or risks in question for a different risk or risks. After the transformation, the asset at risk might be different, or it might be imperiled in a different way, or both. For example, if we're traveling from A to B, and two routes are available, Route 1 might be more congested, while Route 2 might be more hazardous. If we take Route 1 we might lose time; if we take Route 2 we might lose the vehicle and its passengers.
- Slogan: "That risk vanishes if we use this alternative approach, but then we would have to deal with this other risk instead."
- Advantage: If we can't deal with risk event A, but we can deal with risk event B, then we can proceed with confidence if we take an approach in which risk event A cannot occur, but risk event B might.
- Danger: Dealing with risk usually entails estimation. Our estimates can be wrong, either because of the errors inherent in estimation, or because we mislead ourselves.
- In compensation strategies, we arrange that if the risk event occurs, we make up for it somehow.
- Slogan: "If we take these steps, then these good things will happen if the risk materializes."
- Advantage: In compensation strategies, we
arrange that if the risk event
occurs, we make up
for it somehowEven if we can't sufficiently limit the probability or size of the loss, we can proceed with confidence, because the net value of the compensation minus the expected value of the loss is acceptable.
- Danger: We might be so emotionally committed to proceeding that we overestimate the value of the compensation.
- In transfer strategies, we arrange to have some other person or organization (the counter party) bear the consequences of the risk. When the transfer is by mutual agreement, the parties usually exchange some resources as well. Purchasing insurance is an example of a risk transfer strategy.
- Slogan: "If we do this, then we don't have to deal with that risk. They will."
- Advantage: Transferring risk to another party can relieve us of the burden of planning for the risk. The sum of both the resources required for such planning and the expected value of the loss can exceed the cost of transferring the risk.
- Danger: The counter party might not be strong enough, or ethical enough, to cover the loss. When counter parties are coerced into accepting the risk, their reliability can be dubious. Be certain that the transfer is real.
Project risk is inherently imprecise, both numerically and conceptually. By far, the greatest risk is the risk of overlooking or misunderstanding a significant risk, including this one. Ironically, I have never seen it mentioned in a risk plan. First in this series Top Next Issue
Projects never go
quite as planned. We expect that, but we don't expect disaster. How can we get better at spotting disaster when there's still time to prevent it? How to Spot a Troubled Project Before the Trouble Starts is filled with tips for executives, senior managers, managers of project managers, and sponsors of projects in project-oriented organizations. It helps readers learn the subtle cues that indicate that a project is at risk for wreckage in time to do something about it. It's an ebook, but it's about 15% larger than "Who Moved My Cheese?" Just USD 19.95. Order Now! .
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More articles on Project Management:
- Declaring Condition Red
- High-performance teams have customary ways of working together that suit them, their organizations,
and their work. But when emergencies happen, operating in business-as-usual mode damages teams —
and the relationships between their people — permanently. To avoid this, train for emergencies.
- Nine Project Management Fallacies: I
- Most of what we know about managing projects is useful and effective, but some of what we "know"
just isn't so. Identifying the fallacies of project management reduces risk and enhances your ability
to complete projects successfully.
- The Risky Role of Hands-On Project Manager
- The hands-on project manager manages the project and performs some of the work, too. There are lots
of excellent hands-on project managers, but the job is inherently risky, and it's loaded with potential
conflicts of interest.
- Mitigating Risk Resistance Risk
- Project managers are responsible for managing risks, but they're often stymied by insufficient resources.
Here's a proposal for making risk management more effective at an organizational scale.
- Wishful Interpretation: I
- Wishful thinking comes from more than mere imagination. It can enter when we interpret our own observations
or what others tell us. Here's Part I of a little catalog of ways our wishes affect how we interpret
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- And on May 2: Narcissistic Behavior at Work: VII
- Narcissistic behavior at work prevents trusting relationships from developing. It also disrupts existing relationships, and generates toxic conflict. One class of behaviors that's especially threatening to relationships is disregard for the feelings of others. In this part of our series we examine the effects of that disregard. Available here and by RSS on May 2.
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- The Power Affect: How We Express Our Personal Power
- Many people who possess real organizational power have a characteristic demeanor. It's the way they project their presence. I call this the power affect. Some people — call them power pretenders — adopt the power affect well before they attain significant organizational power. Unfortunately for their colleagues, and for their organizations, power pretenders can attain organizational power out of proportion to their merit or abilities. Understanding the power affect is therefore important for anyone who aims to attain power, or anyone who works with power pretenders. Read more about this program.