Expect the unexpected
When the project team employs consistent risk management practices, the enterprise is the odds-on winner.
by Ross Foti photography by Gabe Palacio
Theresa Pardo, Ph.D., Deputy Director, Center for Technology in Government, Albany, N.Y., USA
It's a vicious cycle.
Business leaders feel the pinch from failed projects, so they demand more from projects already in the pipeline. Managers, who feel pressured to save time and money, tell executives what they want to hear: We'll do more with less. Unfortunately, that's often not realistic.
“There's the thought that if you fully disclose the cost of a project—including building relationships, coordinating work, problem solving—you're not going to get funding,” says Theresa Pardo, Ph.D., deputy director of the Center for Technology in Government, Albany, N.Y., USA. “So you create a false reality that you have to manage. A bottom-line focus on the hard costs of projects creates a disincentive for managers to go beyond these traditional cost models and identify the softer costs of projects.”
- Projects fail because they're not properly planned and don't include time for periodic reflection and reassessment.
- A risk brainstorming session should occur early in project planning.
- Leaders should calculate budget targets, commitments and expected outcomes using quantitative risk analysis.
- Attention is shifting to positive risks—those events that an enterprise may capitalize upon with the right planning.
While there are many contributors to project failure, there is no one solution. The factor that comes the closest is planning. Pardo asserts that many projects fail because teams see the project plan as a static document instead of a dynamic framework for achieving a set of objectives. “People think, ‘If we aren't coding, pulling cable or deploying systems, we're not actually moving forward,'” she says. “Analysis isn't considered action. There's a point where you have to move forward, but planning and reflection shouldn't stop. To see problems before they happen, you need a lot of up-front analysis and relationship development. That takes a lot of time and expense, so planning often gets short-shrifted.”
THE GARDEN OF RISK
Eden Project Ltd., Cornwall, U.K.
COST: £75 million
GARDEN IMAGE COURTESY OF EDEN PROJECT LTD.
PROJECT MANAGER: Davis Langdon Management
MISSION: This massive regeneration project aimed to create three biomes, or enclosed climate zones for different plants and animal life, in a 50-meter-deep clay pit. The effort promotes “the understanding and responsible management of the vital relationship between plants, people and resources leading to a sustainable future for all.”
SCOPE: To create a level bottom in the pit, 1.8 million tons of soil were shifted. The covered biomes required the largest birdcage scaffolding in the world: 12 levels, 25 meters across and 46,000 scaffold poles totaling 230 miles of scaffolding.
AT STAKE: The two construction companies worked for 18 months without payment or contract and agreed to loan Eden a significant sum to be repaid if the project was successful.
RISKS: Success was dependent on both technical delivery and public support after completion. The pit posed design challenges because it was unstable, prone to flooding, had no soil and was an inverted cone shape with little level ground.
APPROACH: Because a previous project, the Dome, relied on high visitor numbers, the project team counted on low turnout but did not ignore the opportunity to do better. They proactively planned for the positive risk that visitor expectations would be exceeded and instituted an operations contingency plan.
RESULT: The completed Eden Project had more visitors attend in its first six months than the team had planned for the first two years. If project managers hadn't accounted for the positive risk, there wouldn't have been enough parking, food or air conditioning capacity to accommodate the influx of visitors. Because they planned for the positive opportunity, they were able to invest in an expansion sooner. A new Education Centre is expected to be complete in 2005.
A Comprehensive Plan
A strong business case, project charter and risk management plan will expose the project's strengths and weaknesses. “Step back, develop a good risk list, and determine which you can avoid, which you can mitigate and which you can accept,” says Bob Fritz, senior vice president with Ares Corp., Richland, Wash., USA. “If you have more that you're going to accept than avoid, you probably haven't done a thorough job of risk analysis. I believe in avoidance because it allows you to stick to the technical baseline and schedule. It will contribute to the satisfaction of the customer because you're not dealing with everything in crisis mode and have a much better chance of meeting their needs and goals.”
The right stakeholders must participate in a risk brainstorming session early in project planning. Leaders must think critically about what can affect the team's ability to get the project done. “We start with facilitated sessions where we go through the statement of work, ask customers what they really want, and then detail the work breakdown structure item by item to subdivide expectations,” Fritz says. “When you draw that out, people may realize this project won't deliver something better than what we've got.”
The more proactive they are in uncovering as many prospective risks up front, the better they'll be at managing stakeholder expectations. “What customers want most of all is predictability, particularly on large projects where the customer is the prime contractor,” says Martin Hopkinson, PMP, principal consultant with HVR Consulting Services Ltd., Alton, Hampshire, U.K. “Failure to deliver what was promised on the promised delivery date is the fastest way to create a situation of distrust with the customer. Repeated failure to deliver as promised has a serious long-term effect on intercompany relationships at a higher level than just the project.”
Talk is Cheap
Without an early and frank discussion on budget, team members won't trust the numbers. Senior managers may believe that the project team will spend every penny, and the project team might be convinced that senior managers hold unrealistic expectations.
Leaders can avoid improbable estimates by calculating budget targets, commitments and expected outcomes using quantitative risk analysis, Hopkinson says. For example, if targets are set at just a 20 percent level of confidence, team members can be incentivized to find solutions—such as additional risk mitigation actions—that cause such targets to be met, he says. “In the 20 percent of cases where such targets are achieved, the project will have capitalized on ‘good luck.' However, the existence of expected values and commitment budgets is recognition that the project cannot achieve such good luck in every case, so exceeding targets is not labeled as failure. The gap between expected values and commitments can be equated to contingency budgets.”
Accentuate the Positives
Risk management isn't only about avoiding problems. “People think mitigation is the right thing to do—either minimize or reduce risk,” says David Hillson, Ph.D., PMP, director of Risk Doctor & Partners, Petersfield, Hampshire, U.K. “But remember that there's a relationship between risk and reward. If we mitigate all the risk out of the project, we're certain to remove some of the potential benefits.”
While the emphasis has been on problems, attention is shifting to positive risks—events that an enterprise can capitalize on. Hillson says that risk management is focused equally on opportunities and threats. “If all you see is threats that may take you off the plan, and your risk process is just focused on bringing you back, you can't be 100 percent effective,” he says. “If you have a process that takes into account both positives and negatives, you're bound to balance out. You have a better chance of staying on track.”
What customers want most of all is predictability, particularly on large projects where the customer is the prime contractor.
Martin Hopkinson, PMP,
Principal Consultant, HVR Consulting Services Ltd., Alton, Hampshire, U.K.
INSURANCE VS. ASSURANCE
While liability insurance is common—often a necessity—for intensive construction efforts, a new insurance trend is emerging. Companies are seeking coverage for projects that fail to deliver the value that was promised.
“Insurance is appropriate to cover the effects of high-impact/low-probability events that are outside the direct control of the project team and its parent organization,” says Martin Hopkinson, PMP, HVR Consulting Services Ltd. “Other products based on derivatives allow projects to hedge against major risks to which they are exposed, such as currency exchange rates.”
However, focused project risk management allows the project team to avoid problems from the start. What's more, entering into an insurance agreement may create a risk of its own. “Projects are complex entities, and it is often difficult to prove causal links between risks and outcomes,” Hopkinson says. “It would therefore be difficult for a project and its insurer to devise an economically viable insurance package that covers the project for events that the project itself may have been reasonably prevented.”
With consistent risk management practices, you gain peace of mind—something you won't get when facing stakeholders who want more than compensation for failure.
Moreover, risk management isn't about planning for every possibility—a company would soon tie up all of its resources in a contingency budget. A certain amount of risk planning can occur without knowing what to expect. Hill-son draws a parallel with business continuity planning in which you don't imagine every possible source of business problems. “You build in resilience so that if something unexpected happens, you can recover,” he says. “The organizations that recover most quickly plan for unspecified disasters. Focus on the potential impacts, not the potential causes.”
With project continuity planning, which occurs alongside standard risk management, project managers detail appropriate responses to a generic disaster. “The danger is if people try to use the process inappropriately for risk management,” Hillson says. “Continuity planning is reactive; risk management is proactive. You need both.”
A bottom-line focus on the hard costs of projects creates a disincentive for managers to go beyond these traditional cost models and identify the softer costs of projects.—Theresa Pardo, Ph.D.
Watch and Wallet
Even the best plans can fall to pieces for myriad reasons, from internal and external pressures to customer change requests. “If you're having schedule problems, try to figure out why—assess cause and impact as quickly as possible,” says Jill Richards, PMP, president of Inovacent Solutions LLC, Detroit, Mich., USA. “Then look at options. Project managers feel pressure because of schedule implementation decisions that really haven't been thought through. It's easy to focus on schedule but not realize what the impact on scope, budget and quality will be. That generates more risk and unhappy stakeholders.”
When there's a delay, project managers must inform the right senior management and, eventually, the internal or external stakeholders who are depending on delivery. “Fact-based project plans minimize questions about why something is taking so long,” Richards says. “You have proof. If you can't get to the key decision-makers, you need to get to their right hand—the ones they trust. Decide who has what to gain and what to lose—that helps me decide who to get to and when to minimize issues.”
Although numbers will help explain where things went wrong, they won't solve the problem. After reexamining the plan, leaders may have to steel themselves to face unpleasant possibilities, such as amending scope. “If the work you can get done in the time you have remaining still allows you to deliver the benefit in terms of the business process, then that's what matters,” Pardo says. “When defining scope, we use the [terms] modest, moderate and elaborate. People often jump straight to the purely elaborate [solution]; business value can be delivered with a combination of the three.”
If recovery isn't possible, incremental delivery may be the best solution. “Break down the directive, and see what can be done with the time and money available,” Pardo says. “Rank your priorities in terms of benefits and stakeholders, and decide what can be delivered immediately to whom and how much benefit can be delivered in subsequent stages.”
A Risky Enterprise?
When all is said and done, projects can come in on time and on budget, yet still be considered a failure because they didn't meet strategic goals. To help mitigate this risk, executives can use a tool project managers know well: the breakdown structure. By detailing portfolio, program and project objectives in a top-down hierarchy, management can trace how each lower-level task rolls up to strategic objectives and the overall company mission, according to Hillson. Some software companies build this into their risk planning approaches as a requirements tree.
Sometimes those closest to the problem will have insight into the best way to fix it. Jill Richards, PMP, Inovacent Solutions LLC, employs one or more strategies to get back on track:
- Think Tank. Put key team members off site where they can't be disturbed. Sometimes the team will be more focused and energetic when out of the normal day-to-day environment.
- Town Hall Meeting. Hold an after-hours brainstorming session with either the whole team or the core team.
- Bonus Boost. Offer vendors or team members incentives to find efficiencies, but don't neglect a clear method for measuring success.
- Quick Change. Reassess and shorten processes that typically are administrative but which can significantly impact schedule, such as contract bidding and award and the internal review or approval of submittals.
David Hillson, Ph.D., PMP, Director, Risk Doctor & Partners, Petersfield, Hampshire, U.K.
If we mitigate all the risk out of the project, we're certain to remove some of the potential benefits.
“You may just be the person cutting code or laying bricks, but you need to know why you're doing this in terms of the hierarchy. You are contributing,” he says. “If you link risks to objectives, you can see how addressing project risk links to organizational risk.” If the project team documents the original baseline well, communicates early and often on delays, and progressively reassesses contingencies, leaders won't need excuses at the end. PM
PM NETWORK | JULY 2004 | WWW.PMI.ORG
JULY 2004 | PM NETWORK