Point Lookout: a free weekly publication of Chaco Canyon Consulting
Volume 8, Issue 4;   January 23, 2008:

Managing Personal Risk Management

by

When we bias organizational decisions to manage our personal risks, we're sometimes acting ethically — and sometimes not. What can we do to limit 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.

Lt. Col. John Paul Vann

Lt. Col. John Paul Vann (second from right) briefs his colleagues in Vietnam. Col. Vann was an advocate of a strategy similar to what we now attribute to U.S. Gen. Petraeus in Iraq — enhanced dependence on small units, dispersed amongst the population, coupled with increasing reliance on forces drawn from that population. Col. Vann, who spent most of his years in Vietnam as a civilian, was known for his forthright assessments of the reality of the U.S. position, which he offered with relatively little regard for "personal risk management." As described by Neil Sheehan in his Pulitzer Prize winning history, A Bright Shining Lie: John Paul Vann and America in Vietnam (Order from Amazon.com), Col. Vann was asked at a 1967 meeting with Walt Rostow whether the United States would be over the worst of the war in six months. "Oh, hell no, Mr. Rostow," he said. "I'm a born optimist. I think we can hold out longer than that." Col. Vann was awarded the Presidential Medal of Freedom in 1972. Photo courtesy U.S. Library of Congress.

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 tactics
this 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. Go to top Top  Next issue: The True Costs of Cost-Cutting  Next Issue

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