Risk and reward
By Meredith Landry
Asking project sponsors to shoulder additional risk requires a well thought-out plan—and an eye for opportunity.
Sometimes risk gets a bad rap. Project managers go out of their way to minimize and mitigate uncertain outcomes—but when the right opportunities are assessed responsibly, the potential risks can be outweighed by the potential rewards.
Yet accepting even the smartest risks requires getting the project sponsor on board. Whether it's implementing a new technology, switching methodologies, responding to market changes or bringing on additional resources, project managers need to be prepared to offer a thorough analysis of the change's potential impact on the project plan.
Start by outlining how the benefits compare to the costs, says Joseph Gruber, CAPM, PMP, lead schedule manager for Wyle, an engineering and technical services provider based in Arlington, Virginia, USA.
Mr. Gruber once sold sponsors on accepting the additional risk of adopting virtual technology for a data center upgrade project by demonstrating its long-term ROI.
“There was an increased cost to the project due to upgrading hardware to support the new technology, but we were able to show how the cost would peak in the first years yet provide a positive ROI in future years,” he says. “Additionally, we were able to highlight a schedule increase for this particular project, yet a decreased schedule for future operations once the project was completed.”
When outlining benefits for a sponsor, Mr. Gruber suggests being prepared to explain how the risk will change the cost, schedule or resourcing for the project. Mr. Gruber addressed these issues by asking his technical team to provide an overview of the benefits and a long-term cost model he could provide to the project sponsor. He also compiled historical data from similar internal projects and examples of other organizations that had achieved success by making comparable changes.
“Being able to clearly articulate the likelihood of the risk, its consequences and its impact to the mitigation plan helps alleviate the concerns of the sponsors, because they see that the project manager is prepared,” he says.
Diving Into Documents
While creating this analysis can take time, the up-front investment will help sponsors see the risk as an opportunity, says Bruno Bastos Braga, PMP, risk and planning manager at engineering firm Ecovix-Engevix Construções Oceânicas, Rio Grande, Brazil. Demonstrating the potential positive impact to the organization's key performance indicators can help project managers outline how accepting the risk will further the organization's strategic goals, he says. “Even if the sponsor is risk-averse, the data will be compelling enough to provide a clear solution.”
It's also smart to reevaluate the original project plan and the statement of work (SOW) to see how the proposed changes mesh with the project's scope, says Cheryl Wilson, PMI-RMP, PMP, vice president, risk division, MCL Management Group, LLC, a project management consultancy in Alexandria, Virginia, USA.
“Project managers should determine if the proposed risks are compatible with the current project's constraints, or if the changes being requested are best handled via a subsequent project or cycle,” she says. “If the project manager presents all the possible impacts of the risk triggers, the sponsor can make the determination to have a subsequent project or stay the course.”
“If the project manager presents all the possible impacts of the risk triggers, the sponsor can make the determination to have a subsequent project or stay the course.”
—Cheryl Wilson, PMI-RMP, PMP, MCL Management Group, LLC, Alexandria, Virginia, USA
“A project manager should not provide one solution for any risk. He or she should be innovative in developing scenarios—and yet make a recommendation.”
—Kareem Shaker, PMI-RMP, PMP, Dubai World, Dubai, United Arab Emirates
Presenting the Facts
Given that a sponsor's time is limited, project managers should keep presentations brief, Mr. Gruber says. He recommends drafting a document that presents the bottom line up front, concisely summarizing the risk, how it will affect the bottom line and what the project team will do to mitigate the risk's potential downsides.
Along with this summary, project managers should come prepared with a high-level budget analysis report, as well as the status of the contingencies and management reserves, says Kareem Shaker, PMI-RMP, PMP, senior manager, project and enterprise risk, Dubai World, a global holding company in Dubai, United Arab Emirates.
“Contingency and management reserves are kept to deal with known and unknown risks,” he says.
Showing how the requested risk might tap these reserves—and what would be left over to address other, unforeseen risks—can help sponsors better understand the likelihood that accepting this risk would lead to cost overruns.
As for how the additional risk might change the project's schedule, Mr. Shaker recommends creating two or three iterations that could differ in duration and sequence, and outlining the pros and cons of each version.
“A project manager should not provide one solution for any risk. He or she should be innovative in developing scenarios—and yet make a recommendation,” he says.
While one option is generally an obvious starting point, Mr. Shaker says it's important to include sponsors in the decision-making process. This also makes them feel more involved and appreciate the contingency plans project managers have made.
“In this context, the project manager is selling the risk acceptance to the sponsor,” says Mr. Shaker.
Hearing the Verdict
Even the best argument for taking on risk may be rejected—but the first “no” doesn't always mean the end of the conversation. Knowing the difference between “absolutely not” and “I could be convinced” requires an understanding of what motivates project sponsors.
If the project sponsor seems receptive to more information, project managers should review the original data presented and look for new places to make the case clear and concise.
Before returning to make this presentation, however, Mr. Gruber recommends that project managers speak with another senior leader, someone he or she has established a rapport with, to get feedback on the approach.
“There may be more than one way to get the point across that the project manager might not have looked at,” he says.
Mr. Gruber has even found it useful to convey his message indirectly. Speaking with a leader who was not actively involved with the project, yet had the ear of the project sponsor, successfully laid the foundation for the follow-up meeting, he says.
“This helped pave the way for getting the point across when coming back to that sponsor with additional details,” he says.
Despite all of these efforts, however, the sponsor still may not be persuaded to assume any additional risk. Though it may be difficult to hear, project managers must accept the sponsor's decision, Ms. Wilson says.
“The project manager and team are not the arbitrators of what the project is about or what the project's deliverables should be,” she says. “This is the authority of the project sponsor entirely.” PM
“There may be more than one way to get the point across that the project manager might not have looked at.”
—Joseph Gruber, CAPM, PMP, Wyle, Arlington, Virginia, USA
PM NETWORK SEPTEMBER 2013 WWW.PMI.ORG