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 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.
- 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.
- 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
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More articles on Project Management:
- Nine Project Management Fallacies: II
- Some of what we "know" about managing projects just isn't so. Identifying the fallacies of
project management reduces risk and enhances your ability to complete projects successfully.
- 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
- Communication Traps for Virtual Teams: I
- Virtual teams encounter difficulties that rarely confront face-to-face teams. What special challenges
do they face, and what can we do about them?
- Projects as Proxy Targets: II
- Most projects have both supporters and detractors. When a project has been approved and execution begins,
some detractors don't give up. Here's Part II of a catalog of tactics detractors use to sow chaos.
- Just-In-Time Hoop-Jumping
- Securing approvals for projects, proposals, or other efforts is often called "jumping through hoops."
Hoop-jumping can be time-consuming and frustrating. Here are some suggestions for jumping through hoops
Forthcoming issues of Point Lookout
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- Appearances can be deceiving. Just as we can misinterpret the actions and motivations of others, others can misinterpret our own actions and motivations. But we can take steps to limit these effects. Available here and by RSS on June 26.
- And on July 3: Appearance Antipatterns: II
- When we make decisions based on appearance we risk making errors. We create hostile work environments, disappoint our customers, and create inefficient processes. Maintaining congruence between the appearance and the substance of things can help. Available here and by RSS on July 3.
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- 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.