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 USD 19.95. 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:

Toxic Projects

A toxic project is one that harms its organization, its people or its customers. We often think of toxic projects as projects that fail, but even a "successful" project can hurt people or damage the organization — sometimes irreparably.

The True Costs of Cost-Cutting

The metaphor "trimming the fat" rests on the belief that some parts of the organization are expendable, and we can remove them with little impact on the remainder. Ah, if only things actually worked that way...

Project Improvisation Fundamentals

Project plans are useful — to a point. Every plan I've ever seen eventually has problems when it contacts reality. At that point, we replan or improvise. But improvisation is an art form. Here's Part I of a set of tips for mastering project improvisation.

Ten Approaches to Managing Project Risks: I

Risk management usually entails coping with losses if they do occur. Here's Part I of a concise summary of the options for managing risk.

Missing the Obvious: I

At times, when the unexpected occurs, we recognize with hindsight that the unexpected could have been expected. How do we miss the obvious? What's happening when we do?

See also Project Management and Problem Solving and Creativity for more related articles.

Forthcoming issues of Point Lookout

Coming March 27: Stone-Throwers at Meetings: II

A stone-thrower in a meeting is someone who is determined to halt forward progress. Motives vary, from embarrassing the chair to holding the meeting hostage in exchange for advancing an agenda. What can chairs do about stone-throwers? Available here and by RSS on March 27.

And on April 3: Career Opportunity or Career Trap: I

When we're presented with an opportunity that seems too good to be true, as the saying goes, it probably is. Although it's easy to decline free vacations, declining career opportunities is another matter. Here's a look at indicators that a career opportunity might be a career trap. Available here and by RSS on April 3.

Coaching services

I offer email and telephone coaching at both corporate and individual rates. Contact Rick for details at rbrenltOKSOYYhaVpXSbjner@ChaceCLnQAdWCpzsYYcpoCanyon.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, USD 11.95)
• Get 2003-4 in Why Dogs Wag (PDF, USD 11.95)
• Get 2005-6 in Loopy Things We Do (PDF, USD 11.95)
• Get 2007-8 in Things We Believe That Maybe Aren't So True (PDF, USD 11.95)
• Get 2009-10 in The Questions Not Asked (PDF, USD 11.95)
• Get all of the first twelve years (2001-2012) in The Collected Issues of Point Lookout (PDF, USD 28.99)

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 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 6:00 PM June 29 (Eastern Time), Monthly Webinar, Technobility Webinar Series. You can earn 1.0 Category 'A' PDU by viewing this program. View this program now.