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.
- 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.
- Deep Trouble and Getting Deeper
- Here's a catalog of actions people take when the projects they're leading are in deep trouble, and they're
pretty sure there's no way out.
- Symbolic Self-Completion and Projects
- The theory of symbolic self-completion holds that to define themselves, humans sometimes assert indicators
of achievement that either they do not have, or that do not mean what they seem to mean. This behavior
has consequences for managing project-oriented organizations.
- The Risks of Too Many Projects: II
- Although taking on too many projects risks defocusing the organization, the problems just begin there.
Here are three more ways over-commitment causes organizations to waste resources or lose opportunities.
Forthcoming issues of Point Lookout
- Coming September 25: Planning Disappointments
- When we plan projects, we make estimates of total costs and expected delivery dates. Often these estimates are so wrong — in the wrong direction — that we might as well be planning disappointments. Why is this? Available here and by RSS on September 25.
- And on October 2: Start Anywhere
- Group problem-solving sessions sometimes focus on where to begin, even when what we know about the problem is insufficient for making such decisions. In some cases, preliminary exploration of almost any aspect of the problem can be more helpful than debating what to explore. Available here and by RSS on October 2.
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- The Race to the South Pole: Lessons in Leadership
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. We'll use the history of this event to explore lessons in leadership and its application to organizational efforts. A fascinating and refreshing look at leadership from the vantage point of history. Read more about this program.
Here's a date for this program:
- Baldwin-Wallace University, 275 Eastland Road, Berea, Ohio
44017: November 7,
Kerzner Lecture Series/International Project Management Day, sponsored by Baldwin Wallace University and the Northeast Ohio Chapter of the Project Management Institute.
- Baldwin-Wallace University, 275 Eastland Road, Berea, Ohio 44017: November 7, Kerzner Lecture Series/International Project Management Day, sponsored by Baldwin Wallace University and the Northeast Ohio 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.