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

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.

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:

The Injured Teammate: I

You're a team lead, and one of the team members is very ill or has been severely injured. How do you handle it? How do you break the news? What does the team need? What do you need?

Design Errors and Groupthink

Design errors cause losses, lost opportunities, accidents, and injuries. Not all design errors are one-offs, because their causes can be fundamental. Here's a first installment of an exploration of some fundamental causes of design errors.

More Obstacles to Finding the Reasons Why

Retrospectives — also known as lessons learned exercises or after-action reviews — sometimes miss important insights. Here are some additions to our growing catalog of obstacles to learning.

Power Distance and Teams

One of the attributes of team cultures is something called power distance, which is a measure of the overall comfort people have with inequality in the distribution of power. Power distance can determine how well a team performs when executing high-risk projects.

Seven Planning Pitfalls: III

We usually attribute departures from plan to poor execution, or to "poor planning." But one cause of plan ineffectiveness is the way we think when we set about devising plans. Three cognitive biases that can play roles are the so-called Magical Number 7, the Ambiguity Effect, and the Planning Fallacy.

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

Forthcoming issues of Point Lookout

Coming October 20: On Ineffectual Leaders

When the leader of an important business unit is ineffectual, we need to make a change to protect the organization. Because termination can seem daunting, people often turn to one or more of a variety of other options. Those options have risks. Available here and by RSS on October 20.

And on October 27: Five Guidelines for Choices

Each day we make dozens or hundreds of choices — maybe more. We make many of those choices outside our awareness. But we can make better choices if we can recognize choice patterns that often lead to trouble. Here are five guidelines for making choices. Available here and by RSS on October 27.

Coaching services

I offer email and telephone coaching at both corporate and individual rates. Contact Rick for details at rbrenXEiRBfuFHUtjHrqUner@ChacpYPvvSVhUNIOeXHKoCanyon.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

Public seminars

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.

• A recording of a program presented June 29, 2017, Monthly Webinar, sponsored by Technobility Webinar Series. PMI members can earn 1.0 Category 'A' PDU by viewing this program. View this program now.
   
• A recording of a program presented June 29, 2017, Monthly Webinar, sponsored by Technobility Webinar Series. PMI members can earn 1.0 Category 'A' PDU by viewing this program. View this program now.
   

Bullet Points: Mastery or Madness?

Decision makers in modern organizations commonly demand briefings in the form of bullet points or a series of series of bullet points. But this form of presentation has limited value for complex decisions. We need something more. We actually need to think. Briefers who combine the bullet-point format with a variety of persuasion techniques can mislead decision makers, guiding them into making poor decisions. Read more about this program.

• A recording of a program presented June 24, 2020, Monthly Webinar, sponsored by Technobility Webinar Series. PMI members can earn 1.0 Category 'A' PDU by viewing this program. View this program now.
   
• A recording of a program presented June 24, 2020, Monthly Webinar, sponsored by Technobility Webinar Series. PMI members can earn 1.0 Category 'A' PDU by viewing this program. View this program now.