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 . Order Now! .
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More articles on Project Management:
- Dispersity Adversity
- Geographically and culturally dispersed project teams are increasingly common, as we become more travel-averse
and more bedazzled by communication technology. But people really do work better together face-to-face.
Here are some tips for managing dispersed teams.
- Scheduling as Risk Management
- When we schedule a complex project, we balance logical order, resource constraints, and even politics.
Here are some techniques for using scheduling to manage risk and reduce costs.
- Nonlinear Work: When Superposition Fails
- Much of the work we do is confounding, because we consistently underestimate the effort involved, the
resources required, and the time required to get it done. The failure of superposition can be one reason
why we get it wrong.
- Managing Non-Content Risks: II
- When we manage risk, we usually focus on those risks most closely associated with the tasks at hand
— content risks. But there are other risks, to which we pay less attention. Many of these are
outside our awareness. Here's Part II of an exploration of these non-content risks, emphasizing those
that relate to organizational politics.
- The Risks of Too Many Projects: I
- Some organizations try to run too many development projects at once. Whether developing new offerings,
or working to improve the organization itself, taking on too many projects can defocus the organization
and depress performance.
Forthcoming issues of Point Lookout
- Coming November 20: Paid-Time-Off Risks
- Associated with the trend to a single pool of paid time off from separate categories for vacation, sick time, and personal days are what might be called paid-time-off risks. If your team must meet customer expectations or a schedule of deliverables, managing paid-time-off risks can be important. Available here and by RSS on November 20.
- And on November 27: Implicit Interrogations
- Investigations at work can begin with implicit interrogations — implicit because they're unannounced and unacknowledged. The goal is to determine what people did or knew without revealing that an investigation is underway. When asked, those conducting these interrogations often deny they're doing it. What's the nature of implicit interrogations? Available here and by RSS on November 27.
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- The Race to the South Pole: Ten Lessons for Project Managers
On 14 December 1911, four men led by Roald Amundsen reached the South Pole. Thirty-five days later, Robert F. Scott and four others followed. Amundsen had won the race to the pole. Amundsen's party returned to base on 26 January 1912. Scott's party perished. As historical drama, why this happened is interesting enough, but to organizational leaders, business analysts, project sponsors, and project managers, the story is fascinating. Lessons abound. Read more about this program.
Here's a date for this program:
- Gardner Village, 1100 W 7800 S, West Jordan, UT 84084: November
Quarterly Training Session, sponsored by Northern Utah Chapter of the Project Management Institute.
- Gardner Village, 1100 W 7800 S, West Jordan, UT 84084: November 21, Quarterly Training Session, sponsored by Northern Utah Chapter of the Project Management Institute. Register now.
- 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.