Risks and Issues
According to PMI’s 2018 Pulse of the Profession® report, 9.9% of every dollar spent on projects is wasted. That’s a scary number, and it’s not improving significantly from previous versions of the report. Perhaps even more alarming is that the same report showed the best performers waste 21 times less money than the worst performers. That’s a pretty telling statistic and it illustrates just how important effective project management approaches can be. Few elements of project management contribute more to that improvement than risk management. After all, it’s the element of project management specifically geared to dealing with uncertainty. It’s an aspect of project delivery that everyone can contribute to, and it delivers immediate benefits. So why aren’t you better at it?
No, seriously. Think about how your projects are managed. Risk management is frequently an afterthought, something the project manager and team pay lip service to, developing a basic risk register at the start of the project and then largely ignoring it. And you wonder why 9.9% of every dollar invested is wasted – and that’s assuming you are no worse than average. It’s time to change things, and in this paper, we provide a practical approach to achieving exactly that.
LET’S START WITH THE BASICS
We have to begin by understanding the fundamentals. From a mechanical standpoint, you understand risk management involves identifying risks; assessing those risks for impact, likelihood of occurring, and perhaps ability to recover; and then developing management strategies based on one of the four basic approaches (mitigate, eliminate, transfer or accept). You also understand that things change over time so you need to review those risks on a regular basis. But those aren’t the fundamentals we’re referring to, there are other basic elements of risk management that impact your ability to practice it effectively, and that’s where we need to start.
The first fundamental is something that should be obvious. Risk management requires an investment. From a financial standpoint you need to identify management and contingency reserves to act as budget ‘shock absorbers’ when risks trigger. In this way the project can continue to deliver without impacting the core budget. Similarly, there should be time reserves to absorb potential schedule delays caused by those risks. But those are passive investments – reserves made available if required. There must also be active investments.
Project managers (PMs) and teams must be encouraged to invest as much time as is required into managing risks effectively – not just in the early planning stages of the project, but every day. It’s impossible to define parameters for how much time and effort is needed because it will vary considerably depending on the size and complexity of the project, as well as the initiative’s unique risk tolerance. But risk management should be one of the first allocations of time and energy. If it isn’t, then all the best practices in the world, all the training, all the careful recruitment of skilled individuals, will be for naught. Your project will become a complete gamble because your risk management strategy is one of hoping things will work out.
Achieving this level of performance requires an effective risk management infrastructure. Project managers must be given an environment where risk management is important, where the culture embraces risk management, not one that creates barriers to it through conflicting priorities.
