Managing Personal Risk Management

Most of us believe that we make organizational decisions on the basis of organizational priorities alone. But it just ain't so — sometimes we take into account personal consequences, using organizational influence to limit negative consequences for our own careers, status, and compensation.

Often this behavior is quite ethical. It's encouraged — even embedded into compensation structures. Our stock option plans and profit-sharing plans exploit the pressure of personal consequences by aligning personal and organizational interests. At least, that's the theory.

But sometimes decision makers use their influence to achieve effects that confirm their own personal self worth in less benign ways — sometimes for personal economic gain, as in the case of stock options and profit sharing, and sometimes for other reasons. Those other motives include personal risk management.

Personal risk management is the practice of using organizational influence to protect one's career, personal status or personal compensation. This behavior can occur even when organizational consequences are clearly negative. Here are three typical illustrations.

Aggressive project schedules and budgets

Project sponsors who advocate very tight project schedules and budgets might be doing so for personal advantage, when gaining commitments to those goals might reflect well on them. The failure to meet those goals might reflect badly also, but if the sponsor intends to be long-gone by then, that risk is mitigated.

To limit this behavior, limit project goals and shorten project schedules. Short schedules enhance the likelihood that aggressive sponsors will suffer the consequences of aggressive goals.

Padded estimates

Project managers sometimes "pad" cost or schedule estimates to protect against the personal performance penalties associated with budget or schedule overruns. Much padding behavior is anticipatory — it provides protection from sponsors who are overly aggressive about budget and schedule, and against externally imposed requirements volatility. But some padding is just "insurance."

To limit Unrealistic project schedules
and pathologically tight
budgets are sometimes
little more than career
advancement tacticsthis behavior, monitor budget and schedule underruns. Investigate patterns to determine whether padding is being used for insurance.

Unrealistic promises to customers and investors

Account executives or enterprise executives who promise customers or investors aggressive performance might please the promise recipients, but the organizational cost can be unbearable. This behavior is most common at the ends of quota or fiscal periods, or near commission thresholds, or during time-limited "incentive" periods. It's all a consequence of using extrinsic rewards to enhance personal performance.

To limit this risk, avoid extrinsic rewards, or failing that, include in the calculation of personal incentives a negative effect for promises to customers or investors that are unsupported by prior organizational commitments, whether or not they're achievable or achieved.

Although most personal risk management strategies conflict with organizational goals, asking people to just stop doing it is usually futile, because they're caught in a system that demands it. To bring an end to personal risk management, we must change the systems that cause it.  Top    Next Issue

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One of the attributes of team cultures is something called power distance, which is a measure of the overall comfort people have with inequality in the distribution of power. Power distance can determine how well a team performs when executing high-risk projects. Available here and by RSS on October 23.

And on October 30: Power Distance and Risk

Managing or responding to project risks is much easier when team culture encourages people to report problems and question any plans they have reason to doubt. Here are five examples that show how such encouragement helps to manage risk. Available here and by RSS on October 30.

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