Ten Approaches to Managing Project Risks: I

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.

Denial

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

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

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.

Chaos

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.

We'll continue next time with three more risk management strategies.   Next issue in this series   Top    Next Issue

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! .

Your comments are welcome

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.

This article in its entirety was written by a human being. No machine intelligence was involved in any way.

Point Lookout is a free weekly email newsletter. Browse the archive of past issues. Subscribe for free.

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.

Related articles

More articles on Project Management:

Nepotism, Patronage, Vendettas, and Workplace Espionage

Normally, you terminate or reassign team members who actually inhibit progress. Here are some helpful insights and tactics to use when termination or reassignment is impossible.

Publish an Internal Newsletter

If you're responsible for an organizational effort with many stakeholders, communicating with them is important to success. Publishing an internal newsletter is a great way to keep them informed.

Seven More Planning Pitfalls: III

Planning teams, like all teams, are vulnerable to several patterns of interaction that can lead to counter-productive results. Two of these relevant to planners are a cognitive bias called the IKEA Effect, and a systemic bias against realistic estimates of cost and schedule.

Internal Audits Without Pain

If adhering to established procedures is part of your job, you probably experience occasional audits. You can manage the pain of the experience by regarding audit preparation as part of the job. Because it is. Here are some tips for navigating audits.

Allocating Action Items

From time to time in meetings we discover tasks that need doing. We call them "action items." And we use our list of open action items as a guide for tracking the work of the group. How we decide who gets what action item can sometimes affect our success.

See also Project Management for more related articles.

Forthcoming issues of Point Lookout

Coming July 9: On Being Seriously Funny at Work

Humor is such a valuable tool at work that it ought to be recognized as an official contribution by team members who provide the laughs that keep some teams from auto-destructing. Even if you're not known for bringing the funny, there are a few simple techniques that can change your image. Available here and by RSS on July 9.

And on July 16: Responding to Unwelcome Events

Unwelcome events have two kinds of effects on decision-makers. One set of effects appears as we respond to events that have actually occurred. Another set manifests itself as we prepare for unwelcome events that haven't yet occurred, but which might occur. Making a wrong decision in either case can be costly. Available here and by RSS on July 16.

Coaching services

I offer email and telephone coaching at both corporate and individual rates. Contact Rick for details at rbrenaXXxGCwVgbgLZDuRner@ChacDjdMAATPdDNJnrSwoCanyon.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, )
• Get 2003-4 in Why Dogs Wag (PDF, )
• Get 2005-6 in Loopy Things We Do (PDF, )
• Get 2007-8 in Things We Believe That Maybe Aren't So True (PDF, )
• Get 2009-10 in The Questions Not Asked (PDF, )
• Get all of the first twelve years (2001-2012) in The Collected Issues of Point Lookout (PDF, )

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 500-1000 words in your inbox in one hour. License any article from this Web site. More info