Discussing risk in general terms is always difficult, because many professions have their own ways of thinking about it. For now, let's regard risk as the chance of losing an asset. We measure the chance as a probability. We measure the asset in units of value.
If the probability of loss in a given time interval is P, and the value of the asset is V, the expected value of loss in that time interval is PV. In a large number of identical trials, our average loss per trial would be PV.
Sound decisions about enterprise resources do consider risk. For example, in estimating a project budget, we might consider the possibility that one of our suppliers might deliver a subsystem three months late. To manage this risk, we might reserve resources to deal with it if it occurs. If the cost of dealing with this event is V, and the probability of it occurring is P, then the reserves required are PV.
That's one example of a strategy for dealing with a risk. Fortunately, it isn't the only strategy available, and in many cases we can do much better. Here's Part I of a summary of the possible strategic options for dealing with risk, emphasizing ineffective (but very common) approaches.
- Those in denial are those who reject the reality of the risk event.
- Slogan: "That'll never happen. You're such a worrier!"
- Advantage: Denial lets Those in denial are those
who reject the reality
of the risk eventus feel that preparation is unnecessary, because there's no risk. It can be a comforting illusion, especially for those reluctant to allocate resources to managing risk.
- Danger: If the risk event occurs, we're unprepared. Worse, we can become disoriented when we find that our view of the world is fiction.
- Shock happens when we're blindsided by the unexpected.
- Slogan: "OMG, nobody could've anticipated that."
- Advantage: If the unexpected doesn't happen, we can remain in a state of blissful ignorance.
- Danger: If the unexpected happens too late for us to take remedial action, disaster is possible.
- Acceptance is the strategy for those who don't want to prepare.
- Slogan: "That might happen. We'll deal with it then."
- Advantage: It requires no advance resource allocation. If the risk event doesn't occur, no resources are expended.
- Danger: It can lead us to believe that we have less need for resources than we actually do. Acceptance is a prudent strategy only when PV is very small.
- This approach happens when we're so distracted by immediate events that we cannot plan for future risks.
- Slogan: "Heavens! We've been meaning to plan for that. We clean forgot!"
- Advantage: By focusing our resources elsewhere, we do accomplish some tasks. Without a risk plan, allocating resources to risk management becomes unnecessary.
- Danger: If risk events arrive before we can allocate resources to risk planning, the risk response can be inadequate, and full-scale disaster is possible.
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! .
Your comments are welcomeWould you like to see your comments posted here? rbrenrHQTskJdBLkQHadYner@ChacbkVNOZYVKHJRMiaQoCanyon.comSend me your comments by email, or by Web form.
About Point Lookout
Thank you for reading this article. I hope you enjoyed it and found it useful, and that you'll consider recommending it to a friend.
Support Point Lookout by joining the Friends of Point Lookout, as an individual or as an organization.
Do you face a complex interpersonal situation? Send it in, anonymously if you like, and I'll give you my two cents.
More articles on Project Management:
- Make a Project Family Album
- Like a traditional family album, a project family album has pictures of people, places, and events.
It builds connections, helps tie the team together, and it can be as much fun to look through as it
is to create.
- Nine Positive Indicators of Negative Progress
- Project status reports rarely acknowledge negative progress until after it becomes undeniable. But projects
do sometimes move backwards, outside of our awareness. What are the warning signs that negative progress
might be underway?
- Project Improvisation and Risk Management
- When reality trips up our project plans, we improvise or we replan. When we do, we create new risks
and render our old risk plans obsolete. Here are some suggestions for managing risks when we improvise.
- Beyond Our Control
- When bad things happen, despite our plans and our best efforts, we sometimes feel responsible. We failed.
We could have done more. But is that really true? Aren't some things beyond our control?
- Managing Non-Content Risks: I
- When project teams and their sponsors manage risk, they usually focus on those risks most closely associated
with the tasks — content risks. Meanwhile, other risks — non-content risks — get less
attention. Among these are risks related to the processes and politics by which the organization gets
Forthcoming issues of Point Lookout
- Coming March 27: Stone-Throwers at Meetings: II
- A stone-thrower in a meeting is someone who is determined to halt forward progress. Motives vary, from embarrassing the chair to holding the meeting hostage in exchange for advancing an agenda. What can chairs do about stone-throwers? Available here and by RSS on March 27.
- And on April 3: Career Opportunity or Career Trap: I
- When we're presented with an opportunity that seems too good to be true, as the saying goes, it probably is. Although it's easy to decline free vacations, declining career opportunities is another matter. Here's a look at indicators that a career opportunity might be a career trap. Available here and by RSS on April 3.
I offer email and telephone coaching at both corporate and individual rates. Contact Rick for details at rbrenBwmiZRPJRBDOmUlOner@ChacCOoAqSojKTIVJbYFoCanyon.com or (650) 787-6475, or toll-free in the continental US at (866) 378-5470.
Get the ebook!
Past issues of Point Lookout are available in six ebooks:
- Get 2001-2 in Geese Don't Land on Twigs (PDF, USD 11.95)
- Get 2003-4 in Why Dogs Wag (PDF, USD 11.95)
- Get 2005-6 in Loopy Things We Do (PDF, USD 11.95)
- Get 2007-8 in Things We Believe That Maybe Aren't So True (PDF, USD 11.95)
- Get 2009-10 in The Questions Not Asked (PDF, USD 11.95)
- Get all of the first twelve years (2001-2012) in The Collected Issues of Point Lookout (PDF, USD 28.99)
Are you a writer, editor or publisher on deadline? Are you looking for an article that will get people talking and get compliments flying your way? You can have 500 words in your inbox in one hour. License any article from this Web site. More info
- 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.