Ten Approaches to Managing Project Risks: III

In Part I and Part II, we explored five ineffective strategies and two somewhat more effective strategies for managing risk. In this Part III, we complete our little catalog with three of the more effective strategies.

Transformation

Transformation strategies entail exchanging the risk or risks in question for a different risk or risks. After the transformation, the asset at risk might be different, or it might be imperiled in a different way, or both. For example, if we're traveling from A to B, and two routes are available, Route 1 might be more congested, while Route 2 might be more hazardous. If we take Route 1 we might lose time; if we take Route 2 we might lose the vehicle and its passengers.

Slogan: "That risk vanishes if we use this alternative approach, but then we would have to deal with this other risk instead."

Advantage: If we can't deal with risk event A, but we can deal with risk event B, then we can proceed with confidence if we take an approach in which risk event A cannot occur, but risk event B might.

Danger: Dealing with risk usually entails estimation. Our estimates can be wrong, either because of the errors inherent in estimation, or because we mislead ourselves.

Compensation

In compensation strategies, we arrange that if the risk event occurs, we make up for it somehow.

Slogan: "If we take these steps, then these good things will happen if the risk materializes."

Advantage: In compensation strategies, we
arrange that if the risk event
occurs, we make up
for it somehowEven if we can't sufficiently limit the probability or size of the loss, we can proceed with confidence, because the net value of the compensation minus the expected value of the loss is acceptable.

Danger: We might be so emotionally committed to proceeding that we overestimate the value of the compensation.

Transfer

In transfer strategies, we arrange to have some other person or organization (the counter party) bear the consequences of the risk. When the transfer is by mutual agreement, the parties usually exchange some resources as well. Purchasing insurance is an example of a risk transfer strategy.

Slogan: "If we do this, then we don't have to deal with that risk. They will."

Advantage: Transferring risk to another party can relieve us of the burden of planning for the risk. The sum of both the resources required for such planning and the expected value of the loss can exceed the cost of transferring the risk.

Danger: The counter party might not be strong enough, or ethical enough, to cover the loss. When counter parties are coerced into accepting the risk, their reliability can be dubious. Be certain that the transfer is real.

Project risk is inherently imprecise, both numerically and conceptually. By far, the greatest risk is the risk of overlooking or misunderstanding a significant risk, including this one. Ironically, I have never seen it mentioned in a risk plan. First 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:

Emergency Problem Solving

In emergencies, group problem solving is unusually challenging, especially if lives, careers, or companies depend on finding a solution immediately. Here are some tips for members of teams that are solving problems in emergencies.

Nine Project Management Fallacies: IV

Some of what we "know" about managing projects just isn't so. Understanding these last three of the nine fallacies of project management helps reduce risk and enhances your ability to complete projects successfully.

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.

Managing Non-Content Risks: I

When project teams and their sponsors manage risk, they usually focus on those risks most closely associated with the tasks — content risks. Meanwhile, other risks — non-content risks — get less attention. Among these are risks related to the processes and politics by which the organization gets things done.

Why Scope Expands: I

Scope creep is depressingly familiar. Its anti-partner, spontaneous and stealthy scope contraction, has no accepted name, and is rarely seen. Why?

See also Project Management and Problem Solving and Creativity 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.