Background on Managing Risk on Important Projects
In the context of any strategic initiative involving a significant evolution in systems, process, or organization, risk is the chance that the effort will be less than a complete success … that it will be late, over budget, perform unacceptably when completed, fail to realize the expected business benefits, or even never be completed.
There are so many factors that can contribute to a less-than-successful project. How is a project manager to decide which to focus on and how to address them?
Milt Hess, in his paper Reducing Risk on Projects, presents a strategy for deciding which risk factors deserve attention and for integrating risk reduction into the project holistically instead of treating it as a separate activity. This strategy turns the traditional approach to risk management on its head. Instead of thinking about all the things that can wrong, it focuses on what has to go right.
The strategy requires that a project first establish a clear definition of success – its success targets. The paper describes concrete steps that the project can take to increase the likelihood of meeting the targets and the questions that senior management and sponsors should ask to ensure that the project stays on track.
Here are a few of the key elements of the approach:
- Periodically develop a forecast of the expected outcomes for the success targets. If the forecast for a target is ‘I don’t know’, the project is at risk. Include resources in the project plan to reduce uncertainty about the outcome.
- Dependency on external events and agents introduces risk. Explicitly identify dependencies during the planning process, document assumptions, and monitor them regularly. Include resources in the project plan to reduce uncertainty about the dependencies.