Monday, February 2, 2015

Managing Risk or Managing the Risk Environment

As a good project manager, I am certain that you are managing specific risks on your projects. But are you also managing the risk environment?  What’s the difference?

Managing specific risks focuses on how to solve a specific problem on your project.  Managing the risk environment focuses on setting up the project conditions in such a way that there are fewer risks and the remaining risks are of a lower magnitude. 

Different Project Approaches: Different Risk Environments

Let’s use an example from everyday life to illustrate the point.  While preparing your evening meal, you realize that you need to go out that night and get several items from the market for your breakfast the next day.  You could drive to a large market several miles away that has a wide selection but is next to a large sports arena.  Or you could walk several blocks to a small local market with less selection.  If it is a pleasant evening and there is a big game at the arena with crowds of rowdy fans, the local market is a lower risk option even though the selection is less.  If it is a stormy night and there is no game, the large market is a better approach even though it is farther away.  There are risks with either approach, but depending upon the circumstances the risks with one approach are likely to be more severe than the other.

Most of the project risk management tools and techniques are based upon managing specific risks.  Project risk analysis often focuses on two factors, the probability and the impact of each risk.  However, to do this analysis, much of the project plan must be completed so that the specific probability and impact can be determined.  In order to have completed the project plan, the basic project approach must be set.  If that project approach is set in a high risk environment, the susceptibility to risks is increased and the ability to respond to risks is reduced. The project team can manage the individual risks in this environment.  But it would be even better if we proactively managed the risk environment so there were inherently fewer and lower risks.

Risk Environment Can Be Assessed Before Project Planning

Project susceptibility to risk can be assessed at the time of the Project Charter, as soon as objectives, boundaries, assumptions, and constraints are defined. There are factors in a project environment that are risk enablers and risk magnifiers.  By redefining the project at the time the Project Charter is created some of these factors can be eliminated.  Even if they are not eliminated, knowing that there are many factors creating a high risk environment may change the project planning and executing approach.  For instance task level estimates may be increased, resource selection may change, resource allocation may change, or the frequency and types of reviews may be modified.

A Real Life Example

I applied this concept with a large global contract manufacturer.  We analysed a large set of their recent customer projects, both successes and failures, and looked for common factors.  For this company we found that the factors were:
  •  Product complexity – an assessment of the product design difficulty and stability.
  • Technology maturity – were the required manufacturing processes mature and stable in the company’s operating locations.
  • Quality requirements – did the customer have unique or extreme quality requirements.
  • Geographical dispersion – the number of nodes (company and customer stakeholders directly involved in the project) and their locations, including country and time zones.
  • Cultural aspects – the number of languages and cultures represented on the project team (regardless of location).
  • Contracts and governance – the contractual and regulatory environment associated with the customer and product.
  • Organizational capacity – the number of current projects and the phases they were in.

For each of these factors a rating scale was developed and then a score was set.  A composite risk assessment of all the factors was created using a radar chart.  The company began to use this assessment to screen new projects before deciding to take the work.  If the “web” in the radar chart was small, they would take the project.  If the “web” in the radar chart was large they would either avoid the project or ensure they negotiated time and budget reserves.  If the “web” was lopsided, it gave the project manager insight into areas where extra attention was required in both planning and executing the project.

Managing individual risks is good practice.  Managing the risk environment is even better.


1 comment:

  1. Tag: PM202A57. Let me share all of you about #5 Tips for Project Management Success,, I hope you enjoy it

    1. Plan your day using time management techniques

    As a project manager, time management skills are essential because you are dealing with a wide range of tasks that demand a quick turnaround time. Planning your day will go a long way in keeping you organized and increasing your productivity. Assist your task planning by using project management software which helps you track the work of you and your team.

    If you are not very tech savvy, a simple to-do list can also be a great organizational tool. Prioritize your most important tasks by putting them at the top of the list and less important ones at the bottom. Having a visual plan of your daily tasks helps to keep you on track and aware of time.

    Related post: Free ebook 104 secrets to become a great project manager

    2. Include stakeholders in important project conversations

    While you will have plenty of responsibilities regarding the project, don’t neglect your clients.

    Good communication is essential is keeping both parties informed of project progression, curtailing scope creep, and apprised of changing requirements. Some clients may have different expectations when it comes to communication, so make sure to establish the frequency and type of communication (like emails, phone calls, and face-to-face conversations) at the beginning of your project.

    Establishing communication expectations early helps alleviate stakeholder uncertainty about communication frequency and delivery.

    3. Regularly communicate with your team

    Daily team communication helps keep misunderstandings and unclear requirements under control. Keeping your team informed in every step of the project is essential to project management success.

    For example, a study published by Procedia Technology found that good communication skills were the cornerstone of project management. The study examined over 300 “construction project managers, architects, construction managers, engineers and quantity surveyors” and their successes and failures on various construction projects.

    4. Anticipate project setbacks

    Even the best-laid plans often go awry.

    Remember that even with a high amount of planning and attention to detail, your project may still encounter some challenges. Pay attention to complaints from stakeholders or colleagues, and other warning signs, like a missed deadline or cost overrun, that there may be a problem.

    Preventing a crisis will keep your project running smoothly, save you a lot of time, and keep you, your team, and your stakeholders confident in progressing with the project.

    Unfortunately not every complication can be avoided. Crisis management skills are essential for dealing with the unexpected. Project managers need to be flexible and pragmatic. Improvise and make sharp decisions when needed.

    Related post: 92 free project management templates

    5. Stay focused on the details

    A common problem project managers encounter is having the project aims not aligned with the organization’s objectives. A great project manager will strategize a plan for the project to lead back to the overall success of the business.

    Know your project’s scope by heart and avoid wandering outside of the project’s requirements. It’s too easy to get lost in minor details and forget what your focus is, so a well-planned project scope is essential for success.

    And final, you should use KPI to measure effectiveness of the project, here are full list: 76 project management KPIs