![Phoenix caissons being towed to form a Mulberry harbor off Normandy, June 1944 Phoenix caissons being towed to form a Mulberry harbor off Normandy, June 1944](../images/phoenix-caissons.png)
Phoenix caissons being towed to form a Mulberry harbor off Normandy, June 1944. The Normandy coast has few natural harbors, and for that reason, among others, the German command regarded it as an unlikely site for a landing. They expected an assault at or near one of the harbors on the French coast, which they therefore fortified heavily. Recognizing the high risk of an attack at or near a harbor, the Allies chose to transform that risk into the risks associated with a beach landing. They then dealt with those risks, in part, by engineering artificial harbors, constructed from chains of caissons like those shown here, which they towed from the English coast and sank off the beaches of Normandy. This approach is a clear example of risk transformation. Photo courtesy U.S. Navy Naval History and Heritage Command.
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 issue in this series
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Related articles
More articles on Project Management:
Scheduling as Risk Management
- When we schedule a complex project, we balance logical order, resource constraints, and even politics.
Here are some techniques for using scheduling to manage risk and reduce costs.
Status Risk and Risk Status
- One often-neglected project risk is the risk of inaccurately reported status. That shouldn't be surprising,
because we often fail to report the status of the project's risks, as well. What can we do to better
manage status risk and risk status?
The Risky Role of Hands-On Project Manager
- The hands-on project manager manages the project and performs some of the work, too. There are lots
of excellent hands-on project managers, but the job is inherently risky, and it's loaded with potential
conflicts of interest.
How to Make Good Guesses: Tactics
- Making good guesses probably does take talent to be among the first rank of those who make guesses.
But being in the second rank is pretty good, too, and we can learn how to do that. Here are
some tactics for guessing.
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.
See also Project Management and Problem Solving and Creativity for more related articles.
Forthcoming issues of Point Lookout
Coming July 3: Additive bias…or Not: II
- Additive bias is a cognitive bias that many believe contributes to bloat of commercial products. When we change products to make them more capable, additive bias might not play a role, because economic considerations sometimes favor additive approaches. Available here and by RSS on July 3.
And on July 10: On Delegating Accountability: I
- As the saying goes, "You can't delegate your own accountability." Despite wide knowledge of this aphorism, people try it from time to time, especially when overcome by the temptation of a high-risk decision. What can you delegate, and how can you do it? Available here and by RSS on July 10.
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