Project Management Institute

The great unknown

keeping an eye on the horizon, and crafting a contingency plan, can help project teams anticipate and avoid unexpected risks

BY SARAH FISTER GALE

Keeping an eye on the horizon—and crafting a contingency plan—can help project teams anticipate and avoid unexpected risks.

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Project managers can shine a spotlight on hidden risks by putting more focus on tracking and validating assumptions.

—Jeanette Bordelon, PMP, EY, Chicago, Illinois, USA

Ignoring a problem won't make it go away. The same holds true for project risks.

Known risks, such as fluctuating material costs or potential project skills shortages, can be monitored and mitigated. But unknown risks present a much bigger problem for practitioners. Whether it's the discovery of infrastructure limitations on an IT project or ancient burial grounds on a construction site, unforeseen risks can trigger delays and inflate budgets. And without advance notice, project managers might find themselves scrambling for a solution—or facing project failure.

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“It's important to communicate what you don't know from the start of the project so the team is aware of the potential for risks.”

—Alexander Althuon, PMP, Airbus Defense and Space, Munich, Germany

PHOTO BY MATTHEW GILSON

According to PMI's 2015 Pulse of the Profession: Capturing the Value of Project Management, 30 percent of organizations cited poorly defined opportunities and risks as the primary cause of project failure. The Pulse report also found that 83 percent of high-performing organizations (organizations that achieve 80 percent or more of projects on time, on budget and meeting original goals) frequently use risk management practices, compared with 49 percent of low performers (organizations that achieve 60 percent or fewer projects on time, on budget and meeting original goals).

That's because proper due diligence, contingency planning and a commitment to the risk registry can help project managers spot unknown risks early on—and help project teams expect the unexpected, says Alexander Althuon, PMP, enterprise risk management governance, Airbus Defense and Space, Munich, Germany.

“It's important to communicate what you don't know from the start of the project so the team is aware of the potential for risks,” he says. “That is one of the ways you drive a culture of risk anticipation.”

UNCHARTED TERRITORY

Not all potential risks can be found by looking to lessons learned. To scope out unknown risks, project managers must think outside the box, says Ananthan Sanggar, PMI-RMP, PMP, business manager, BT Global Services, a communications and IT services firm in Singapore. To root out potential red flags, he recommends interviewing customers and subject matter experts on the project team as well as employing risk-identification methods such as a cause-and-effect diagram.

For example, when Mr. Sanggar's team ran an IT network project in the Philippines, he knew that local telecom service providers could experience frequent downtime. In an attempt to introduce redundancies and increase reliability, the team connected the network to two local service providers. However, the team didn't realize that both service providers depended on the same data center. So, when that data center went down, it took Mr. Sanggar's client network with it—and threatened his team's promise to deliver 99 percent uptime.

To minimize the damage, Mr. Sanggar's team met immediately with its unhappy customer. Team members educated the client about the shortcomings of the country's infrastructure, took responsibility for not identifying the problem sooner and proposed to lay a new fiber optic cable line around the problematic data center.

“It was a more expensive solution, but also more reliable,” Mr. Sanggar says.

The customer and project team ultimately agreed to split the cost of the new cable line. It still cost the entire contingency budget Mr. Sanggar's team had set aside to pay for unknown risks, but the customer was satisfied with the solution—and the project was still profitable.

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PHOTO BY MATTHEW GILSON

Having a diverse group in a brainstorming session ensures that issues the core team might overlook will emerge.

—Jeanette Bordelon, PMP

The next time he encounters a similar scenario in a different country, Mr. Sanggar says he will add a layer to evaluating potential risks: “Invest in travel to the local country for a face-to-face interview with the customer to identify risk. Local customers who have spent many years in the country would be able to share insights into potential risks.”

ASSUME NOTHING

It pays for project managers to be skeptical, because it raises the team's risk awareness at every turn. While it can be difficult to switch gears from the optimistic sales focus required to land a new client, the team must shift into critical and analytical mode to poke holes in its own project plan and thereby avoid encountering unknown risks, says John Greenwood, PMP, risk management lead, CSC, Southampton, England.

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“One of the biggest risks you can have is an overly optimistic project team.”

—John Greenwood, PMP, CSC, Southampton, England

“One of the biggest risks you can have is an overly optimistic project team,” he says.

Actively questioning all of the plan's assumptions can help a project team understand everything that's needed to complete the required scope. If some assumptions must be made for the project to move forward, “have a contingency plan for the risk that your assumptions are wrong,” Mr. Greenwood says. Such a plan starts by asking what are other possible outcomes if assumptions are wrong, he says. How would problems impact scope, timeline and cost? “Consider the effect on the client's business and reputation, and the delivery organization's relationships and reputation.”

Project managers also can shine a spotlight on hidden risks by putting more focus on tracking and validating assumptions, says Jeanette Bordelon, PMP, manager, program risk management advisory services group, EY, Chicago, Illinois, USA.

For example, Ms. Bordelon worked with a client that needed a new enterprise resource planning (ERP) system, but didn't have an expert on its team to handle the implementation. The lack of expertise was identified as a risk, so the client hired an outside vendor to run the implementation and mitigate the risk. But that's where assumptions got in the way.

“They assumed that the vendor would have and use all the expertise and necessary level of maturity needed to deliver a project of this scope,” she says. They were wrong.

It turned out that the vendor didn't follow many of the expected processes and procedures for an ERP implementation—and the project quickly went south. “Six months into the project, the vendor had not yet created an integrated master schedule,” Ms. Bordelon says.

Once the client realized the error, the company insisted the vendor replace the project lead. But the damage was already done. In the end, the project exceeded its budget and schedule. “If they had a more solid risk management process in place, they would have identified the risks associated with this choice,” Ms. Bordelon says. Such a process should include performing risk reviews involving a representative mix of key stakeholders, she says.

“This must include reviews of all assumptions, with the aim to validate whether each major assumption is true, false or still unknown,” she says. “If it's unknown, it still needs to be reviewed.”

PROCEED WITH CAUTION

At CSC, Mr. Greenwood helps project teams identify the gaps in their plans where unknown risks can lurk. In the past, some underlying assumptions were not fully explored, which was bad news for project delivery control. This meant project teams either did extra work without effective change control or contingency budgets were increased to cover unclear specifications.

“They were forgetting the first lesson of project management: know your scope,” he says.

Mr. Greenwood now hosts risk workshops with project teams and clients to identify project unknowns. The workshops occur during the proposal phase at the very beginning of the project, where his team examines each step of the proposal with the client to baseline agreed assumptions into the scope, identify the true unknowns and agree on responses. If an unidentified risk emerges during delivery—for instance, the client requires more data storage than anticipated—the stakeholders can review the original scope document, identify which assumptions didn't hold up and agree on the resulting change request. This process takes extra time, but it ensures the level of detail needed to manage scope during delivery, the ability to name identifiable risks and clarity on where unknown risks might lurk.

These brainstorming sessions should include legal, finance, IT, sales and anyone else who might have an effect or be affected by the project outcome, Ms. Bordelon says. Having a diverse group in a brainstorming session ensures that issues the core team might overlook will emerge, she says. “That's where questions get voiced and problems addressed.”

Forecasting Storms

Project managers don't have the power to predict every project risk that could possibly emerge. But being proactive can help mitigate the consequences of those risks. Project practitioners recommend the following steps to get ahead of unknown risks—and deal with them as they're realized.

  • Be vigilant. At each phase of the team's risk workshops, project leaders should reassess the mix of stakeholders to make sure the right ones are involved in order to best flush out upcoming risks for the remaining project and/or subsequent phases. “This will help you reduce the amount and impact of unknown risks,” says Jeanette Bordelon, PMP, manager, program risk management advisory services group, EY, Chicago, Illinois, USA.
  • Rank the worst. As part of the disaster plan, rank potential project catastrophes based on worst possible financial impact and assess how quickly recovery plans can be put in place. This process will foster a better understanding of project vulnerabilities and help develop effective responses.
  • Go outside. Project managers should seek feedback on risk assessment and risk reviews from external teams such as subcontractors and suppliers. It's an opportunity to identify and mitigate unknown risks, such as an inability to secure a key piece of equipment or receive raw materials on time.

Although these workshops won't eliminate all risks, over time, they can foster a culture of what Mr. Althuon calls “risk anticipation awareness.” While surprises such as earthquakes and oil spills can hardly ever be predicted, fostering a risk-awareness culture helps project teams focus on implementing a contingency plan rather than scrambling to react.

“When you have a risk-aware culture, there are a lot fewer surprises down the road.”

—Alexander Althuon, PMP

“Some people think that if they raise a lot of risks it will make them look bad, but risks don't disappear just because you ignore them,” he says. “When you have a risk-aware culture, there are a lot fewer surprises down the road—and if they hit the project, you are much quicker to react.” pm

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI.

PM NETWORK JANUARY 2016 WWW.PMI.ORG
JANUARY 2016 PM NETWORK

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