Risk management is essential for any significant project. and is useful for any project where an unfavorable outcome is undesirable. Certain information about key project cost, performance, and schedule attributes are often unknown until the project is underway. The emerging risks that can be identified early in the project that impact the project later, are often termed “known unknowns.” These risks can be mitigated with a good risk management process. For risks that are beyond the vision of the project team a properly implemented risk management process can also rapidly quantify the risks impact and provide sound plans for mitigating its affect.
Risk management is concerned with the outcome of future
events, whose exact outcome is unknown, and with how to deal with these
uncertainties. Outcomes are categorized as favorable or unfavorable, and risk
management is the art and science of planning, assessing, handling, and
monitoring future events to ensure favorable outcomes. A good risk management
process is proactive and fundamentally different than issue management or
problem solving, which is reactive.
The Five Pieces are:
- Hope is not a strategy
- All point estimates are wrong
- Without integrating Cost, Schedule and Technical Performance you’re driving in the rear view mirror
- Without a model for risk management, you’re driving in the dark with the headlights turn off
- Risk Communication is everything
Hope is Not a Strategy
Project Managers constantly seek ways to eliminate or control risk, variance and uncertainly. This is a hopeless pursuit.
Managing “in the presence” of risk, variance and uncertainty is the key to success. Some projects have few uncertainties –only the complexity of tasks and relationships is important – but most projects are characterized by several types of uncertainty. Although each uncertainty type is distinct, a single project may encounter some combination of four types:
- Variation – comes from many small influences and yields a range of values on a particular activity
- Foreseen Uncertainty – are uncertainties identifiable and understood influences that the team cannot be sure will occur.
- Unforeseen Uncertainty – is uncertainty that can’t be identified during project planning. When these occur, a new plan is needed.
Chaos – appears in the presence of “unknown unknowns”
No Point Estimate can be Correct
Project duration and costs are random variables drawn from some underlying probability distribution.
The use of point estimates for durations and costs is many times the first impulse in an organization low on the project management maturity scale. Understanding cost and durations are actually “random variables,” drawn from an underlying distribution of possible value is the starting point for managing in the presence of uncertainty.
Cost, Schedule, and Technical Performance Are Inseparable
In many descriptions of project management – cost, schedule, and quality are considered as the “Iron Triangle.” Change one and the other two must change as well. It turns out this is too narrow a view of what's happening on a project.
It’s the Technical Performance Measurement that replaces Quality. Quality is one of the Technical Performance measures.
Cost and Schedule are obvious elements of the project. Technical Performance Measures describe the status of technical achievement of the project at any point in time.
Risk Management Demands a Well Defined Process
Risk Management means using a proven risk management process, adapting this to the project environment, and using this process for everyday decision making.
Technical performance is a concept absent from the traditional approaches to risk management. Yet it is the primary driver of risk in many technology intensive projects. Cost growth and schedule slippage often occur when unrealistically high levels of performance (not just through put and the like, the product behaviors and service levels are performance as well) are required and little flexibility is provided to degrade performance during the course of the program. Quality is often a cause rather than an impact to the program and can generally be broken down into Cost, Performance, and Schedule components.
Risk Management Demands Communication between all Parties
It does no good to manage risks if the results are not communicated to all the participants. Only the participants can define the needed mitigations
Risk communication is the basis of risk mitigation. It serves no purpose to have a risk plan and the defined mitigations in the absence of a risk communication plan.
Risk Management in Five Easy Pieces, PMI Colorado Springs, May 8, 2008 is a more detailed look at this topic