SOMETIMES THREATS SEEM TO COME OUT OF NOWHERE.
From earthquakes to political coups, certain events may not necessarily be on—or even near—the radar. It's up to project leaders to expect the unexpected, establishing contingency plans for worst-case scenarios so when the unanticipated does happen, total chaos doesn't ensue.
“Project managers have to pick their heads up and look around,” says Charles W. Bosler, risk manager at Services & Technology Group Inc., a risk-management consultancy in Milford, New Hampshire, USA, and chairman of the PMI Risk Management Specific Interest Group. “You have to identify where the project is most vulnerable to uncontrollable situations, then define how you can mitigate the impact.”
Mr. Bosler admits there are no easy solutions in risk management—and that frustrates a lot of project managers. “Everyone wants an accurate statistically defensible assessment of exactly what can happen and how to handle it,” he says. “That can't be done for every risk every time.”
HISTORY LESSON
To stay on guard, some companies use a risk register in which users track how they've responded to problems in the past and then tap into that information to prepare for the future.
“It can be as simple as writing down the things that keep you up at night or it can go into infinite detail,” Mr. Bosler says. “The key is recording what you were concerned about and what you did in response so that next time you can do better.”
Lui Sieh, PMP, IT director for British American Tobacco, Taipei, Taiwan, contributes to a risk register that the company's risk-management committee evaluates twice a year, updating it to reflect changing business risks. The register is then coordinated with the company's business-continuity and disaster-recovery plans.
“For us, risk comes in several forms,” says Mr. Sieh, who defines it as “anything that can happen that will make our project fail, be unsuccessful or make us unable to compete.” In the tobacco business, that includes everything from legislations curtailing the advertising, sale and use of the product, to earthquakes or other “acts of God” that could isolate Taiwan from the rest of the world.
“For every risk, we have projects in place or contingency plans developed to reduce the risk's impact,” he says.
Earthquakes are a particular concern, especially after a December 2006 incident shut down businesses in southern Taiwan for weeks.
“It crippled and isolated the country,” Mr. Sieh says. “Phone lines were dead, mobile lines were inoperable and businesses could not access information. We were unable to pay our vendors, banks or government taxes and we had to resort to a manual-based system for some key transactions.”
Throughout the crisis, the only working communication technology came via BlackBerry satellite connections.
“This experience showed us that our disaster-recovery plan was lacking, and in 2007 we spent the whole year trying to bullet-proof it as best we could with a limited budget,” Mr. Sieh says.
Part of that solution included rebuilding the company's disaster-recovery site, a backup location that can now better support the entire company's operations, including office facilities; network, data and telephony systems; and internet connections inside and outside of Taiwan. “If there is another earthquake, the site will allow us to quickly get back to full operations and minimize business interruption,” he says.
LOOK AROUND
Unfortunately, it often takes an unexpected event to show companies the value of planning ahead.
Most companies respond to crises rather than plan for them. And it's those companies that lose the most, says Paul Kirvan, vice president of Marsh USA, a risk and insurance services firm in New York, New York, USA. “Every project, large or small, should have a process established for dealing with unplanned events to minimize their impact on the business,” he says.
Those companies prepared for a crisis can gain a competitive advantage because they tend to recover faster than those who are not.
“Something as simple as a fire in a data center can become catastrophic without a plan,” he explains. “If you don't deal with such possibilities ahead of time, your employees are on the street, data are lost and you run the risk of losing business because you can't meet your deadlines.”
The best risk-management programs are ongoing and dynamic, Mr. Bosler adds. “You have to look ahead at what's coming on a scheduled basis and discuss what you will do if something happens, before it happens.”
Mr. Bosler serves as the risk manager for the $490.8 million Capitol Visitor Center construction project at the U.S. Capitol in Washington, D.C. In that case, one of the contingency plans revolved around how to handle the death of a high-profile individual.
“Generally when people like that die they are laid out in the Capitol Rotunda,” he explains. “That could shut our project down for a week.”
By planning for such an eventuality, the team was prepared when U.S. civil rights icon Rosa Parks and U.S. Supreme Court Justice William Rehnquist died. Viewing of Justice Rehnquist was moved to the Supreme Court, while construction teams were diverted to other areas of the project for the five days that Ms. Parks was laid out in the rotunda. “We minimized the impact to the project schedule by having a plan,” he says.
That kind of preparation doesn't always come easily to project managers, though, says Guillaume Saouli, PMP, CEO of Saouli Consulting International, an IT business consultancy in Geneva, Switzerland. “People don't like ‘what ifs,’ and they reject the idea that a project might be at risk,” he says. “Instead they narrow their thinking to their own confines and not to what's happening around them.”
42
The percentage of respondents who said they rely primarily on the experience and intuition of their senior management to identify risk
SOURCE: GLOBAL RISK MANAGEMENT SURVEY 07
An earthquake
in 2006 showed us that our disaster-recovery plan was lacking, and in 2007 we spent the whole year trying to bulletproof it as best we could with a limited budget.
—LUI SIEH
But being informed about the environment around the project puts the team in a much stronger position and helps mitigate seemingly simple issues that could otherwise impact project success. Mr. Saouli points to a software development team he worked with in France that wanted to ramp up rollout of a new product on short notice. There was just one problem: In France, employers are required to give five weeks' prior notification and receive authorization from a judge before employees can work on a Sunday.
“Because they didn't plan ahead they couldn't do it,” he says. “After having faced such a situation, I learned that you need to mitigate such a risk by taking into account all of the factors that might affect you.”
This is particularly important if you're running a project in an unfamiliar part of the world. “Things change from country to country and so many external factors can affect a project if you are not aware of them,” Mr. Saouli warns. “When you look at a project with an outsider's perspective you can avoid a lot of mistakes.”
INCONVENIENT TIMING
Even with the best risk management, project leaders need to recognize things don't always go according to plan, says Will Daniels, vice president of quality, food safety and organic integrity for Natural Selection Foods, a San Juan Batista, California, USA-based producer and packager of organic salads, fruits and vegetables. “Crises don't happen at 9 a.m. on Monday mornings.”
That was one of the first lessons Mr. Daniels learned on the Friday afternoon in September 2006 when a potent strain of E. coli bacteria was linked to fresh spinach that the company bagged for the Dole brand. Fortunately, Mr. Daniels and the entire Natural Selection Foods team had trained for the crisis.
“We prepare for these kinds of events with every product and process we develop,” he says. Along with conducting risk analysis for new product lines, the company develops detailed crisis-management and recall-preparation strategies and drills every employee in the company on what to do in such an event.
Making sure everyone knows their role in a crisis is critical, he says, particularly when media attention makes every employee a target for interviews. “It's not easy to get the time and resources you need to support this kind of preparation,” Mr. Daniels admits. “Business is about the day-today work, and unless you've been through a crisis you never think it's going to happen to you.”
But that's a short-sighted mistake he wasn't going to let happen. “I forced everyone to participate in the recall drills and in the end that contributed to our success,” he says.
Because of all the preparation, Mr. Daniels says he felt he could rely on all the team members to do their part during the crisis. This allowed him to focus on communication with the U.S. Food and Drug Administration and the media. “I didn't have to spend time training people or telling them what they were supposed to do.”
Natural Selection Foods executives were also committed to risk management. “They understand the value of being prepared and they invested in it,” says Samantha Cabaluna, director of communications at the company.
But Mr. Daniels says there was one thing he wasn't prepared for. “Prior to September 2006, my understanding from all my crisis training was that a recall shouldn't disrupt business,” he says. “I now know that's impossible.”
Mr. Daniels warns project leaders that no matter how great their risk-management techniques, a crisis—whether it's a product recall, an environmental disaster or some other event—will interrupt the business, at least for a while. How long depends on how prepared you are to handle the situation. “Know it will be disruptive going in,” he says, “then be as prepared as you can be to mitigate that disruption.”
Since their successful handling of the recall, Ms. Cabaluna and Mr. Daniels have fielded calls from people in many different industries asking for guidance on developing their own risk-management and crisis-response plans.
“That recall illustrated for us the importance of being prepared,” Ms. Cabaluna says. “You can't know everything that can happen, but you can get much further down the road when it does if you plan ahead.” PM