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 . 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:

Some Causes of Scope Creep

When we suddenly realize that our project's scope has expanded far beyond its initial boundaries — when we have that how-did-we-ever-get-here feeling — we're experiencing the downside of scope creep. Preventing scope creep starts with understanding how it happens.

The Politics of the Critical Path: I

The Critical Path of a project or activity is the sequence of dependent tasks that determine the earliest completion date of the effort. If you're responsible for one of these tasks, you live in a unique political environment.

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.

Why Scope Expands: I

Scope creep is depressingly familiar. Its anti-partner, spontaneous and stealthy scope contraction, has no accepted name, and is rarely seen. Why?

Down in the Weeds: II

To be "down in the weeds," in one of its senses, is to be lost in discussion at a level of detail inappropriate to the current situation. Here's Part II of our exploration of methods for dealing with this frustrating pattern so common in group discussions.

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

Forthcoming issues of Point Lookout

Coming August 19: Motivated Reasoning

When we prefer a certain outcome of a decision process, we risk falling into a pattern of motivated reasoning. That can cause us to gather data and construct arguments that lead to the outcome we prefer, often outside our awareness. And it can happen even when the outcome we prefer is known to threaten our safety and security. Available here and by RSS on August 19.

And on August 26: Motivated Reasoning and the Pseudocertainty Effect

When we have a preconceived notion of what conclusion a decision process should produce, we sometimes engage in "motivated reasoning" to ensure that we get the result we want. But when we do this in relation to a chain of decisions in the context of uncertainty, trouble looms. Available here and by RSS on August 26.

Coaching services

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

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 June 29, 2017, Monthly Webinar, sponsored by Technobility Webinar Series. PMI members can earn 1.0 Category 'A' PDU by viewing this program. View this program now.
   
• A recording of a program presented June 29, 2017, Monthly Webinar, sponsored by Technobility Webinar Series. PMI members can earn 1.0 Category 'A' PDU by viewing this program. View this program now.
   

Bullet Points: Mastery or Madness?

Decision-makers in modern organizations commonly demand briefings in the form of bullet points or a series of series of bullet points. But this form of presentation has limited value for complex decisions. We need something more. We actually need to think. Briefers who combine the bullet-point format with a variety of persuasion techniques can mislead decision-makers, guiding them into making poor decisions. Read more about this program.

• A recording of a program presented June 24, Monthly Webinar, sponsored by Technobility Webinar Series. PMI members can earn 1.0 Category 'A' PDU by viewing this program. View this program now.
   
• A recording of a program presented June 24, Monthly Webinar, sponsored by Technobility Webinar Series. PMI members can earn 1.0 Category 'A' PDU by viewing this program. View this program now.