Project Management Institute

Bolts from the blue

by Maya Payne Smart

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Beneath the gauzy layer of optimism that the worst is over, danger lurks.

Economic fortunes may be picking up—but not everyone's prepared for the risks resulting from the rollercoaster ride of change wrought by the recession.

No shocker here: Many of the threats are tied to the fickle financing sparked by the downturn. Scarce access to capital and diminished cash flow mean companies may not know where the money for projects is coming from, or when. Some projects are put on hold, while others face shortened or stretched-out timelines.

“I would say the number-one risk that we face is instability of funding,” says Glen Alleman, vice president of program planning and controls at Lewis & Fowler, a project management consulting firm in Englewood, Colorado, USA.

The volatility in budgets has forced shorter-term, iterative planning processes into play across many sectors.

Defense contractors, for one, have tackled the tumult with “rolling waves,” allocating budgets on a six- to nine-month basis. “You never plan beyond what you've got defined because the world is going to change,” Mr. Alleman says. “That's the only way to survive, and it drives the financial folks crazy. They have to figure out how to live within this profile.”

Even governments aren't immune to project threats presented by new budget crackdowns.

“The [U.K.] Ministry of Defence has a multibillion-pound budgetary black hole, which it is trying to fix with a ‘save now, pay later’ approach,” Amyas Morse, head of the National Audit Office, said in a statement. “This gives a misleadingly negative picture of how well some major projects in the Ministry of Defence are managed, represents poor value for the money and heightens the risk that the equipment our armed forces require will not be available when it is needed or in the quantities promised.”

A NEW WAY OF THINKING

Cautiousness prevails even in places such as Australia that weren't hit as hard by the financial crisis, says Murtaza Hassanali, PMI-RMP, PMP, IT program manager, Integral Energy, Huntingwood, New South Wales, Australia.

Savoir-Faire in Low Supply

Sometimes the risk comes from within, as talent shortfalls put companies and their projects in danger.

In many parts of the world, there are insufficient numbers of veteran project and program managers, says Glen Alleman, Lewis & Fowler, Englewood, Colorado, USA.

“That's a risk [because] the younger managers are all very smart, but they haven't lived through hard times or difficult programs,” he explains. “They are lacking the experience about what to do in the face of disaster. If you haven't lived through one downcycle, you are always optimistic.”

Younger project managers have certainly learned some tough lessons recently, but it may not be enough.

In some cases, companies are turning to outside help. Aerospace firms, for example, are increasingly relying on contractors from engineering or program management consultancies.

“What companies have done is spread their risk by having a smaller core cadre and then having specialty contracting firms,” Mr. Alleman says. “Usually, it's less expensive because they don't have to pay retirement and other benefits.”

In the energy sector, heightened environmental consciousness has increased pressure on utility companies to deliver power more efficiently. Many electricity networks are being upgraded to a smart grid, and the needed expertise is only just starting to mature. Simply put, inexperience puts proper project execution at risk.

“It's a new way of doing things,” says Murtaza Hassanali, PMI-RMP, PMP, Integral Energy, Huntingwood, New South Wales, Australia.

“We're entering a complex phase. Intellectual property becomes your competitive edge, and that's going to be scarce. Rather than only relying on consultants, project managers are working more collaboratively and finding new ways of solving problems.

“Some of the ways of operating in this new era mean project teams sometimes have to develop their own innovations. If a project manager hits an obstacle, there is little opportunity to seek assistance and expertise from outside of his or her typical resource pool.”

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Not everyone may spot a danger point, so be ready to make your case. “If your boss takes a stand and is immovable, that becomes a constraint that you have to work within,” says David Hillson, PhD, PMP, Risk Doctor & Partners, Petersfield, Hampshire, England.

To secure executive buy-in on a risk-management plan, share case studies, show how other organizations are handling similar situations and forward news stories that pertain to the economy or other trends.

“It's not that there is a lack of funding,” he says, “but [companies] are very conservative in how they spend their capital.”

That stance brings longer investment decision-making and heightened monitoring.

When you plan a project based on historical experiences, you might base it on a three-month timeline, for example. But now it takes twice as long to accommodate “stronger stakeholder engagement, emphasis on business change and transformation to cater to the new thinking in investments,” Mr. Hassanali says.

The rules have changed.

“We're entering a new phase after the global financial crisis where there are less existing textbook approaches or expert knowledge available,” he says. “When you talk about dealing with the new environment or new risk mitigation, you have to combine what you learned in school with experiences and new innovative methods.”

Running the Risks

Here's a rundown of what to watch out for this year, according to the World Economic Forum:

img Economic Risks

Oil price spikes Major fall of the U.S. dollar Slowing Chinese economy Asset price collapse Retrenchment from globalization Burden of regulation Underinvestment in infrastructure

img Geopolitical Risks

Transnational crime and corruption International terrorism Nuclear proliferation Global governance gaps

img Environmental Risks

Extreme weather Water scarcity Natural catastrophes Air pollution Biodiversity loss

img Societal Risks

Pandemics and diseases Migration

img Technological Risks

Critical information infrastructure breakdown Data fraud/loss

SOURCE: GLOBAL RISKS 2010

To truly master the altered risk environment, companies need everyone on guard. Project managers and their teams must look far beyond the traditional confines of their projects—yet such a wide view doesn't always come easy.

“Project managers tend to deny that risk will occur on their projects,” says David Hulett, PhD, president, Hulett & Associates, a project risk consultancy in Los Angeles, California, USA. “But if pressed about risks, they will generally focus on technical and engineering risks because they often come from an engineering background. Technical risks are often some of the least important risks to a project.”

Too many project managers are silent, oblivious or in denial when it comes to other risks, particularly external or organizational ones, that can affect project outcomes. “They are smart enough to recognize them,” he says. “They just don't think about them very often.”

It's up to program and portfolio managers to get project managers thinking. They should also be on the lookout for a possible whitewash. “Often, project managers are biased in wanting their project to look good to management and customers, so they whitewash the project risk by denying it may occur or by downplaying risks' significance to the project,” says Dr. Hulett.

Those at the top level need to coordinate communication and action among all the project players affected, says David Hillson, PhD, PMP, Risk Doctor & Partners, Petersfield, Hampshire, England.

All too often, project managers are left to uncover major risks on their own when others within their organization could have proffered warnings.

“Project management is an increasingly mature discipline with a proven track record and because it is succeeding people are pushing it to do more,” he says.

There are limits, however.

“I would be resistant to breaching the project scope boundary,” Dr. Hillson says.

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The effectiveness of risk management is very patchy. The key indicator is whether people are being proactive or reactive. The majority of project managers are still in reactive mode.

—David Hillson, PhD, PMP

Project managers shouldn't have to worry about how other business decisions will affect their organization as a whole. If, for example, a new business is acquired, they can't be concerned about risks to the relevance, funding and staffing of a given project.

“Business managers should communicate downward to project managers, ‘Here's what's happening, how it affects you and what I want you to do,’” Dr. Hillson says.

Such efforts may require significant time and several meetings, though in many cases a simple policy directive will suffice. Dr. Hillson recently witnessed a senior management team send project managers a new set of guidelines after it recognized the implications of a country's political shift for its projects.

A risk breakdown structure can also help project managers think more broadly about potential problems—examining endemic project management risks, such as planning issues, as well as external risks, such as regulatory shifts.

Brainstorming around the various sources of risk to identify and categorize risks in greater detail helps project managers develop more sophisticated views of the context in which their projects succeed or fail. Oftentimes, bringing in outside experts with varying disciplinary backgrounds results in a more inclusive list of potential risks. Project managers may also benefit from maintaining checklists of risks encountered in similar projects, Dr. Hulett says.

Threats don't always fall into neat categories that can be fully predicted or controlled, of course, but that's no excuse for a lack of due diligence.

“The effectiveness of risk management is very patchy,” says Dr. Hillson. “The key indicator is whether people are being proactive or reactive. The majority of project managers are still in reactive mode.”

Companies that can't change that philosophy may be in danger. 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 MAY 2010 WWW.PMI.ORG
MAY 2010 PM NETWORK

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