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 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! .
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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.
- Risk Management Risk: II
- Risk Management Risk is the risk that a particular risk management plan is deficient. Here are some
guidelines for reducing risk management risk arising from risk interactions and change.
- Project Improvisation as Group Process
- When project plans contact reality, things tend to get, um, a bit confused. We can sometimes see the
trouble coming in time to replan thoughtfully — if we're nearly clairvoyant. Usually, we have
to improvise. How a group improvises tells us much about the group.
- Some Risks of Short-Term Fixes
- When we encounter a problem at work, we must choose between short-term fixes (also known as workarounds)
and long-term solutions. Often we choose workarounds without appreciating the risks we're accepting
— until too late.
- Ten-Minute Training
- Despite decades of evolution of technology-assisted workplace learning, instructor-led classroom formats
remain the most popular and effective. Now perhaps videoconferencing can help to achieve that effectiveness
at lower cost.
See also Project Management and Project Management for more related articles.
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- And on February 5: On Shaking Things Up
- Newcomers to work groups have three tasks: to meet and get to know incumbent group members; to gain their trust; and to learn about the group's task and how to contribute to accomplishing it. General skills are necessary, but specifics are most important. Available here and by RSS on February 5.
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