
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:
Personnel-Sensitive Risks: I
- Some risks and the plans for managing them are personnel-sensitive in the sense that disclosure can
harm the enterprise or its people. Since most risk management plans are available to a broad internal
audience, personnel-sensitive risks cannot be managed in the customary way. Why not?
The Risks of Too Many Projects: II
- Although taking on too many projects risks defocusing the organization, the problems just begin there.
Here are three more ways over-commitment causes organizations to waste resources or lose opportunities.
Anticipating Absence: Why
- Knowledge workers are scientists, engineers, physicians, attorneys, and any other professionals who
"think for a living." When they suddenly become unavailable because of the Coronavirus Pandemic,
substituting someone else to carry on for them can be problematic, because skills and experience are
not enough.
Some Perils of Reverse Scheduling
- Especially when time is tight, project sponsors sometimes ask their project managers to produce "reverse
schedules." They want to know what would have to be done by when to complete their projects "on
time." It's a risky process that produces aggressive schedules.
Should We Do This?
- Answering the question, "Should we do this?" is among the more difficult decisions organizational
leaders must make. Weinberger's Six Tests provide a framework for making these decisions. Careful application
of the framework can prevent disasters.
See also Project Management and Project Management for more related articles.
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Coming June 4: White-Collar Contractor Sabotage
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And on June 11: More Things I've Learned Along the Way: VI
- When I gain an important insight, or when I learn a lesson, I make a note. Example: If you're interested in changing how a social construct operates, knowing how it came to be the way it is can be much less useful than knowing what keeps it the way it is. Available here and by RSS on June 11.
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