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 [email protected]