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 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.
- 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.
- 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 welcomeWould you like to see your comments posted here? rbrenmhXARWRMUvVyOdHlner@ChacxgDmtwOKrxnripPCoCanyon.comSend me your comments by email, or by Web form.
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.
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.
More articles on Project Management:
- The Cheapest Way to Run a Project Is with Enough Resources
- Cost reduction is so common that nearly every project plan today should include budget and schedule
for several rounds of reductions. Whenever we cut costs, we risk cutting too much, so it pays to ask,
"If we do cut too much, what are the consequences?"
- Remote Facilitation in Synchronous Contexts: II
- Facilitators of synchronous distributed meetings — meetings that occur in real time, via telephone
or video — encounter problems that facilitators of face-to-face meetings do not. Here's Part II
of a little catalog of those problems, and some suggestions for addressing them.
- Deep Trouble and Getting Deeper
- Here's a catalog of actions people take when the projects they're leading are in deep trouble, and they're
pretty sure there's no way out.
- False Summits: I
- Mountaineers often experience "false summits," when just as they thought they were nearing
the summit, it turns out that there is much more climbing to do. So it is in project work.
- Ten Approaches to Managing Project Risks: II
- Managing risk entails coping with unwanted events that might or might not happen, and which can be costly
if they do happen. Here's Part II of our exploration of coping strategies for unwanted events.
Forthcoming issues of Point Lookout
- Coming October 23: 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. Available here and by RSS on October 23.
- And on October 30: Power Distance and Risk
- Managing or responding to project risks is much easier when team culture encourages people to report problems and question any plans they have reason to doubt. Here are five examples that show how such encouragement helps to manage risk. Available here and by RSS on October 30.
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
- The Race to the South Pole: Lessons in Leadership
On 14 December 1911, four men led by Roald Amundsen reached the South Pole. Thirty-five days later, Robert F. Scott and four others followed. Amundsen had won the race to the pole. Amundsen's party returned to base on 26 January 1912. Scott's party perished. As historical drama, why this happened is interesting enough. But to organizational leaders, business analysts, project sponsors, and project managers, the story is fascinating. We'll use the history of this event to explore lessons in leadership and its application to organizational efforts. A fascinating and refreshing look at leadership from the vantage point of history. Read more about this program.
Here's a date for this program:
- Baldwin-Wallace University, 275 Eastland Road, Berea, Ohio
44017: November 7,
Kerzner Lecture Series/International Project Management Day, sponsored by Baldwin Wallace University and the Northeast Ohio Chapter of the Project Management Institute.
- Baldwin-Wallace University, 275 Eastland Road, Berea, Ohio 44017: November 7, Kerzner Lecture Series/International Project Management Day, sponsored by Baldwin Wallace University and the Northeast Ohio Chapter of the Project Management Institute. Register now.
- 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.