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 in this series  Top    Next Issue

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Related articles

More articles on Project Management:

Restarting Projects

When a project gets off track, we sometimes cancel it. But since canceling projects takes a lot of courage, we look for ways to save them if we can. Often, things do turn out OK, and at other times they don't. There's a third choice, between pressing on with a project and canceling it. We can restart.

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Working on complex projects, we often face a choice between "just do it" and "wait, let's think this through first." Choosing to just do it can seem to be the shortest path to the goal, but it rarely is. It's an example of a Finger Puzzle.

The Politics of the Critical Path: II

The Critical Path of a project is the sequence of dependent tasks that determine the earliest completion date of the effort. We don't usually consider tasks that are already complete, but they, too, can experience the unique politics of the critical path.

Why Scope Expands: II

The scope of an effort underway tends to expand over time. Why do scopes not contract just as often? One cause might be cognitive biases that make us more receptive to expansion than contraction.

Unresponsive Suppliers: III

When suppliers have a customer orientation, we can usually depend on them. But government suppliers are a special case.

See also Project Management and Devious Political Tactics for more related articles.

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Coming July 18: High Falutin' Goofy Talk: III

Workplace speech and writing sometimes strays into the land of pretentious but overused business phrases, which I like to call high falutin' goofy talk. We use these phrases with perhaps less thought than they deserve, because they can be trite or can evoke indecorous images. Here's Part III of a collection of phrases and images to avoid. Available here and by RSS on July 18.

And on July 25: Exploiting Functional Fixedness: II

A cognitive bias called functional fixedness causes difficulty in recognizing new uses for familiar things. It also makes for difficulty in recognizing devious uses of everyday behaviors. Here's Part II of a catalog of deviousness based on functional fixedness. Available here and by RSS on July 25.

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