RISK MANAGEMENT

LIP SERVICE OR A PRACTICAL TOOL FOR PROJECT SUCCESS

BY DR JOHN HOGAN PMP

PROJECT MANAGEMENT IS COMPOSED OF PLANNING

AND EXECUTION

BUSINESS MANAGEMENT IS COMPOSED OF PLANNING

AND EXECUTION

-A PROCESS UNDERTAKEN TO PREDICT THE FUTURE

BUSINESS MANAGEMENT IS COMPOSED OF PLANNING

AND EXECUTION

-A PROCESS UNDERTAKEN TO PREDICT THE FUTURE

-COMPLETING TASKS THAT WERE DEFINED IN THE PAST

DOES ANYONE SEE A PROBLEM HERE?

HUMANS CANNOT PREDICT THE FUTURE

WE HAVE THE PLANNING FALLACY(COINED BY NOBEL PRIZE WINNER DANIEL KAHNEMAN IN HIS 2011 BEST SELLER THINKING FAST AND SLOW)

PROJECT TEAMS ARE EMOTIONALLY AND POLITICALLY DRAWN TO PORTRAYING THE BEST CASE SCENARIO FOR THEIR COST AND SCHEDULE PERFORMANCE AS THE MOST LIKELY (THE INSIDE VIEW)

WHILE

IGNORING THE PERFORMANCE DATA FROM ALL OTHER PROJECTS IN THEIR REFERENCE CLASS (THE OUTSIDE VIEW)

WE HAVE COMPLEXITY(SEE A LEADER’S FRAMEWORK FOR DECISION MAKING BY DAVID J. SNOWDEN AND MARY E. BOONE IN THE 2007 HARVARD BUSINESS REVIEW)

PROJECT MANAGEMENT BY ITS DEFINITION RESULTS IN UNIQUE PRODUCTS OR SERVICES-PRODUCTS OR SERVICES THAT PREVIOUSLY DID NOT EXIST

IF THESE PRODUCTS OR SERVICES INTERACT WITH OTHER COMPONENTS, ALREADY DEVELOPED OR IN DEVELOPMENT, THE PROACTIVE PROJECT MANAGER MUST BE AWARE OF THESE INTERACTIONS

SELF-ORGANIZING BEHAVIORS CAN EMERGE THAT HAVE AN UNPREDICTABLE IMPACT ON A PROJECT’S COST, SCHEDULE, OR FUNCTIONALITY

WE HAVE LIMITED KNOWLEDGE(SEE THE BLACK SWAN BY NASSIM TALEB FOR A LUCID ANALYSIS OF THE IMPACT OF RARE EVENTS)

A STATISTICALLY MINDED TURKEY MAY THINK IT HAS KNOWLEDGE OF ITS EXPECTED DAILY GRAIN RATION BASED OF A YEAR OF DATA. IT KNOWS THE MEAN AND THE STANDARD DEVIATION

BUT IT DOSEN’T KNOW NEXT WEEK IS THANKSGIVING

IN SHORT WE HAVE UNCERTAINTY

“UNCERTAINTY IS TOMORROW’S ONLY TRUTH”LORENZO OF FLORENCE, CIRCA 1500

ALTHOUGH HUMANS CANNOT PREDICT THE FUTURE

ALTHOUGH HUMANS CANNOT PREDICT THE FUTURE

WE STILL HAVE TO KEEP OUR STAKEHOLDERS HAPPY

ALTHOUGH HUMANS CANNOT PREDICT THE FUTURE

WE STILL HAVE TO KEEP OUR STAKEHOLDERS HAPPY

BY COMMITTING TO BASELINES

IN THE PLANNING PHASE WE JUGGLE THE BALLS OF FUNCTIONALITY COST AND SCHEDULE UNTIL WE HAVE AN EXECUTABLE BASELINE -at least we think it is

BASELINE

HOWEVER THIS BASELINE IS NO MORE THAN THE CONCENSUS OPINION (AMOUNG OURSELVES AND OUR STAKEHOLDERS) OF WHAT THE FUTURE WILL BE

THE STAKEHOLDERS WATCH US AND OFFER THEIR OPINION ON OUR ABILITY TO BUILD THIS BASELINE

BASELINENice job

Very thorough

Nice suit

Can I leave now

COST

SCHEDULESCOPE

THE FUTURE COMES SOONER THAN WE THINK AND IN THE EXECUTION PHASE JUGGLING BALLS TURNS INTO JUGGLING CHAINSAWS AND THE TERRA FIRMA OF THE PLAN YEILDS TO UNCERTAINTY -you’re a little more interesting to watch now

AND NOW THE STAKEHOLDERS BECOME MORE ANIMATED

COST

SCHEDULE

SCOPE

Who decided that

That’s gonna cost us

What were you thinking

Where’s the risk management been on this project

RISK MANAGEMENT IS A FORMAL ATTEMPT AT PROTECTING OUR BASELINES FROM THE PERILS OF UNCERTAINTY

RISK MANAGEMENT HAS TWO FORMS

STRATEGICAPPLIED DURING THE PLANNING PROCESS TO ENSURE THE BASELINE HAS A BALANCE OF RISKS AND OPPORTUNITIES ALIGNED WITH THE ORGANIZATIONAL MISSION

TACTICALAPPLIED DURING PROJECT EXECUTION TO ENSURE THE BASELINED FUNCTIONALITY IS DELIVERED ON TIME AND WITHIN BUDGET

THE UNDERLYING PROCESS FOR QUANTIFYING RISKS OR OPPORTUNITIES IS BASED ON THE CONCEPT OF EXPECTED VALUE (DEVELOPED BY MEMBERS OF THE BERNOULLI FAMILY-CIRCA 1700s)

EXPECTED VALUE = IMPACT times PROBABILITY

STRATEGIC RISK

APPLIED IN THE PLANNING PHASE

MUST ADDRESS COMPETITIVE MARKET PLACE FORCES

DRIVEN BY THE ORGANIZATIONAL CULTURE RISK ADVERSE OR RISK TAKING

SUPPORTING TOOLS RANGE FROM SWOT ANALYSIS TO DECISION TREES TO PROPRIETARY ANALYTIC ALGORITHMS

BUT CULTURE TRUMPS TOOLS

NO MATTER WHAT THE NATURE OF OUR ORGANIZATION’S RISK CULTURE……

IF WE LEAVE THE STRATEGIC PLANNING PHASE WITH A PROJECT……….

WE LEAVE WITH A BASELINE

BASELINE

SOME RISKS ARE RETIRED IN BASELINE DECISIONS

SOME ARE ACCEPTED IN BASELINE DECISIONS BECAUSE OF THE OPPORTUNITIES THEY ALLOW

RISK

Risk Management Occurs During Planning (Strategic) and Execution (Tactical)

BASELINE

RISK

WHILE SOME RISKS ARE RETIRED IN BASELINE DECISIONS

SOMEAREN’T

RISK

A RISK TEMPLATE IS USED AS A MANAGEMENT TOOL DURING PROJECT EXECUTION

BEFORE WE ADDRESS TACTICAL RISK MITIGATION LET’S ADDRESS A MAJOR MISUNDERSTANDING

CONFUSING OUTCOMES WITH RISKS

IF A PROJECT MANAGER RELATES THE FOLLOWING

“I HAVE A MAJOR RISK. I THINK THE SOFTWARE DEVELOPMENT MIGHT BE TWO MONTHS LATE AND 20% OVERRUN”

WHAT SHOULD THE BOSS SAY?

NO S!@#

NO S!@#

SOFTWARE IS ALWAYS LATE AND ITS ALWAYS OVERRUN TELL ME SOMETHING I DON’T KNOW

WE NEED TO DETERMINE THE UNDERLYING ROOT CAUSE OF THE DELAY TO HAVE ANY CHANCE OF DEVELOPING AN EFFECTIVE RESPONSE

ONE EFFECTIVE APPROACH RELIES ON APPLYING 3 POINT ESTIMATING WHEN BUILDING THE BASELINE

FOR KEY COST DRIVERS AND LONG ACTIVITIES ON THE CRITICAL PATH WE ASK THE TEAM MEMBERS PROVIDING THE ESTIMATES FOR THREE NUMBERS BEST CASE

MOST LIKELYWORST CASE

WHEN APPLIED TO ALL LINE ITEMS IN THE SCHEDULE THE 3 POINT SYSTEM FORMS THE BASIS OF THE PERT ESTIMATING APPROACH

PERT HAS BEEN AROUND SINCE THE FIRST NUCLEAR SUBMARINE

WE’RE NOT GOING TO CONCERN OURSELVES WITH PERT HERE. WE’RE STILL GETTING A HANDLE ON TACTICAL RISK

TACTICAL RISKTHE SAVVY RISK MANAGER ASKS THOSE WHO BUILT THE ESTIMATE

“WHAT WOULD HAVE TO TRANSPIRE TO MAKE THE WORST CASE OCCUR” “WHAT WOULD HAVE TO TRANSPIRE TO MAKE THE BEST CASE OCCUR”

WE NOW HAVE SPECIFIC EVENTS FOR WHICH WE CAN ESTIMATE IMPACT AND PROBABILITY

Results of Uncertainty

UNCERTAINTY BEST CASE WORST CASE MOST LIKELY

POSSIBLE OUTCOMES

BETTERTHANBASELINED

WORSETHANBASELINED

.

.

OPPORTUNITY(BEST CASE)

RISK(WORST CASE)

HOW DO WE MAKE ACTIONABLE

Making Risks Actionable

• What undesirable events or conditions from the cloud of uncertainty are the root cause of risks to the baseline

• What is the negative impact if these undesirable events or conditions come to pass

• What is the probability of these events or conditions coming to pass

• What cost effective mitigation can be implemented to reduce the impact or reduce the probability of these risks

Making Opportunities Actionable• What desirable events or conditions from the cloud of

uncertainty are the enablers of opportunities to the baseline

• What is the positive impact if these desirable events or conditions come to pass

• What is the probability of these events or conditions coming to pass

• What cost effective enhancements can be implemented to increase the impact or increase the probability of these opportunities

RISK/OPPORTUNITY TAXONOMY

RISK OPPORTUNITY

Undesirable events conditions Desirable events conditions

Root Cause Enablers

Negative Impact Positive Impact

Probability Probability

Cost Effective Actions Cost Effective Actions

Mitigate Risk Enhance Opportunities

Reduce Impact Increase Impact

Reduce Probability Increase Probability

RISK ROOT CAUSE

BASELINE ELEMENT AFFECTED

IMPACT BY $ OR SCALE

PROBABILITY EXPECTED VALUE

XXX

YYY

ZZZ

THE TACTICAL RISK TEMPLATE

THE SAVVY PROJECY MANAGER PRIORTIZES THE RISK EVENTS BY EXPECTED VALUE AND DEVOTES MANAGEMENT TIME TO MITIGATING THE ROOT CAUSES OF THE TOP THREE TO FIVE RISKS TO THE BASELINE

Risk Words to Live By

PROBABILITY

IMPA

CT

PREVENT

ACCEPT MITIGATE

INSURE

OPPORTUNITY ROOT CAUSE

BASELINE ELEMENT AFFECTED

IMPACT BY $ OR SCALE

PROBABILITY EXPECTED VALUE

XXX

YYY

ZZZ

THE TACTICAL OPPORTUNITY TEMPLATE

THE SAVVY PROJECY MANAGER PRIORTIZES THE OPPORTUNITIES BY EXPECTED VALUE AND DEVOTES MANAGEMENT TIME TO ENABLING THE TOP THREE TO FIVE OPPORTUNITIES TO THE BASELINE

Opportunity Words to Live By

PROBABILITY

IMPA

CT

EXPLOIT

IGNORE HARVEST

TEAM

THE TYPICAL APPROACH TO RISK MANAGEMENT IN TOO MANY ORGANIZATIONS IS AS FOLLOWS:

MUSHY RISK DESCRIPTIONS LISTED IN A FORMALIZED TEMPLATE DUSTED OFF WHEN THE PROGRAM GETS IN TROUBLE

BY MUSHY I MEAN CONFUSING STRATEGIC WITH TACTICAL AND OUTCOMES WITH RISKS

IN THE PREVIOUS CHARTS WE HAVE DESCRIBED A UNAMBIGUOUS WAY TO THINK ABOUT RISK MANAGEMENT AND AN EFFECTIVE WAY TO IMPLEMENT IT

MY CURRENT AVOCATION IS TEACHING PROJECT MANAGEMENT AND FACILITATING DISCUSSIONS ABOUT ITS APPLICATION. I’D BE INTERESTED IN YOUR IDEAS FOR PROTECTING YOUR PROJECT FROM UNCERTAINTY. PLEASE CONTACT ME ON LINKEDIN OR AT THE EMAIL BELOW

Dr John Hoganjhogan1278@gmail.com