Managing flight risk

Introduction

“Flight risk” is a legal term describing the likelihood of a person to flee prosecution. As a project management term it describes the likelihood of untimely attrition. The purpose of this paper is to discuss some of the reasons project managers always seem to struggle with maintaining resources until the very end of their projects. As the project gets close to completion, key personnel start working their next assignment mentally, if not physically.

Three things are required for risk: A risk event, a probability that it will occur, and a resulting consequence. (Pritchard 1997) The risk event is lacking qualified resources to complete the project on time to the appropriate level of quality, within the available funding. Typical flight risk likelihood can vary from a remote possibility all the way to a near certainty with consequences ranging from a minor distraction to catastrophic to the project. This paper will touch on some strategies that can be used to reduce the likelihood of key personnel leaving too early, as well as reducing the severity of consequences should their departure occur late in the project. The paper is laid out in question and answer form to address some fundamental questions associated with handling flight risk. The key questions are:

• Why do people quit?

• What types of projects are most susceptible?

• How is organizational structure a factor?

• When can attrition be anticipated?

• What can I do in the short term?

• What's the best way to handle flight risk?

Primary areas of the PMBOK® Guide and project life cycle discussed in this paper include: Project Integration Management, Cost Management, Human Resource Management, Communication Management, Risk Management, and Procurement Management.

The Scenario

A government project was supposed to be a simple hardware change-out of workstations and servers, with a re-host of approximately 3.1 million lines of custom software code onto a new Unix platform. The strategy was to use both systems in parallel, passing binary compatible data back and forth to utilize the new system as much as possible. New machines were installed and became increasingly productive as more applications were re-hosted. Once critical processing mass was achieved on the new equipment the old machines were removed. Approximately three-fourths of the way through the project a reorganization was announced that affected the hardware engineering and system administration functions of the platform in transition. Details regarding the reorganization were withheld for approximately five months. During that time five of seven hardware engineers and three of four system administrators left the project and the company. Progress slowed to a crawl as the remaining resources performed duties in their functional areas and not on the project.

Why Do People Quit?

Human resource managers are required to keep the right employees on-board to support the organization's needs. Regardless of the organizational structure, people tend to leave employers for a host of reasons. Mazlow's hierarchy of needs might suggest that people are always striving to meet their self-actualization needs (Hellriegel 1998, 141). Pragmatists might insist the individuals haven't met their basic security needs and just want more money. Informal exit interviews with employees from the scenario revealed similar reasons for leaving to those cited in Ivancevich's textbook nearly 15 years earlier (Ivancevich 1986). Specifically, the following reasons were identified for leaving the scenario project early:

• Uncertainty about new role after the reorganization

• Rumors about pay and benefit reductions at new company

• Rumors about layoffs for non-transitioned employees

• Lack of stability in work (fear of being laid off)

• Beating the crowd to the job market.

In the current low unemployment situation (4.3% March 2001, BLS), employees have much more leverage because they are in scarce supply. While this situation does not necessarily lead to attrition per se, it does contribute to a lower threshold of what employees might otherwise endure; and therefore increases the likelihood of flight risk. The extent of the increase would be somewhat related to the organization's most recent rate of attrition, and inversely related to the value placed on retention. One researcher makes a compelling argument for adopting a new paradigm that requires understanding “the market, not your company, will ultimately determine the movement of your employees.” He advocates aggressively improving retention by addressing such things as compensation, job design, job customization, and social ties (Cappelli 2000).

The Internet is full of employment referral services and various types of job banks, not to mention aggressive headhunters that represent a fair number of clients. Some companies offer significant referral bonuses for recruiting new employees. Personnel with high demand skills, your project staff for instance, are being courted, and virtually anything that interferes with their sense of “fairness” can send them to the competition.

The equity model (Hellriegel 1998, 153) assumes employees are rational and evaluate what they have to do for various rewards (fairness). For instance, an employee who evaluates the effort they spend on a given task and then finds out someone else is paid more for the same task will tend to put forth less effort. If the employee receives something additional with value to them, such as flexible work hours, they may actually put forth more effort. The challenge for Project Managers and HR specialists is that employees don't indicate what they value as meaningful rewards from their job. Everybody has a different set of desires. Conducting interviews with employees to identify what is perceived as a reward and what is not would help reduce the likelihood of flight risk by making the Project Manager aware of those desires. One employee may enjoy travel, while another loathes it. Ignorance on the part of the Project Manager increases the likelihood of flight risk.

Clearly most of the reasons for leaving are emotionally driven. These same feelings are present in all projects coming to a close. As the project execution phase comes to an end, project personnel naturally start looking for their next task. For some it may be a convenient opportunity to dust off their resume and market their new experiences. For others, it might involve a step up the food chain with increased responsibility on the next project. Whether internally or externally, your project personnel will already be looking for new work.

Which Kinds of Projects Are Most Susceptible?

In the scenario it was an Information Technology project with the goal of replacing one system with another. This concept is portable to other replacement projects. Regardless of technology, when an old system is required to maintain operations until the new system is verified and validated, the potential to prematurely lose expert resources in the closing phases is significant. The new environment usually involves installation of an operational staff. It becomes clear the outgoing experts are not required beyond completion, so they make plans for work after the end of the project. The best and brightest (most experienced) are the most marketable. In general, projects that have a significant transition element involved have a higher likelihood of losing resources prematurely.

Development projects on technology's leading edge may also experience flight risk. Team members gain new skills and experience making them more marketable. This adds to the likelihood of flight risk. The more unique the skills required to complete the project, the greater the consequence of untimely attrition because it takes longer to locate suitable replacements. Current employees may have to be trained if new employees can't be readily located with the necessary skills.

Projects dealing with technology's trailing edge have a higher likelihood of flight risk for similar reasons of unique skill requirements. The difference is that these projects use older, possibly outdated technology. Some projects are compelled to interface with old and decrepit hardware, or outmoded software, that is simply not cost efficient to replace. Personnel who acquired the skill when it was new and innovative may be nearing retirement. They may also be looking to develop more current and marketable skills.

Lastly, “routine” projects, if there were such things, would be less likely to experience untimely attrition because most of the uncertainty is gone. Uncertainty in schedules, expectations, integration, and adequate personnel resources has been reduced to the point that flight risk might become a reality because of boredom.

How is Organizational Structure a Factor?

In the project scenario, the organization was highly functional. Conventional hardware engineering and system administration departments supplied personnel to the project. Support agreements were made at the senior supervisor level, rather than individual assignments to a team. In this particular situation the individuals’ first priorities lay with the department, then the project. Senior supervisors accepted responsibility for providing adequate resources and the project was allowed to complete on time. Thus the likelihood of losing key individuals is constant, but the consequence reduced because of readily available replacement personnel. In functional and weak matrix organizations project managers have little influence over specific resources. The functional organizations provide the necessary resources.

Highly Projectized and Strong Matrix organizations (PMI 1996) on the other hand, may experience flight risk but with very different consequences. The project manager has complete authority of the assigned resources to perform tasks that accomplish the goals and objectives. These teams tend to be focused and highly agile with regard to addressing project needs. Attrition can cause the project manager to become engaged personally with finding adequate resources, usually stealing them from lower priority projects. Again, this structure is not without merit, for the project manger also has the authority to negotiate innovative retention methods to keep key resources for as long as necessary, even if on a temporary basis. Lee Ann Gjertsen warns about some of the pitfalls of using contract or part-time workers in her article for the National Underwriter. Co-employee, consultant, or temporary employee status can pose significant liability for the organization for the simplest problems such as worker's compensation issues and co-insurance (Gjertsen 2000, 10). Contingency plans designed to reduce the consequences of flight risk may increase the likelihood of some other programmatic risk.

When Can Attrition Be Anticipated?

When the project involves major changes in the organization's structure, operation, process, or technology, flight risk should be anticipated. Communicating the strategic direction of the organization has to be clearly defined in the communication plan (PMI 1996). This simple action may prove valuable in lowering the likelihood of flight risk.

When the project requires a unique set of skills for any group, be they extinct or cutting-edge technology skills; flight risk is more likely, especially if the acquisition of these skills is a project responsibility.

Sometimes people have accidents or become ill and the threat to project goals is the same. Consider the life-style of your project teams and plan accordingly. A project team composed of car drivers, skydivers and rugby players has a significantly higher likelihood of flight risk not because of personnel changing jobs, but because of injury or death (CDC 2001).

What Can I Do in the Short Term?

In the short term, project managers can exert a significant amount of influence when responding to a sudden loss of resources. Speed is of the essence. Respond quickly to ascertain the consequence when the eminent risk is about to actuate. You must identify not only the direct damage done to the project schedule but also to successor tasks. Know the opportunity costs associated with missing deliveries, removals, or implementations such as considering lost revenue while a system is not installed when trying to justify unique short-term rewards. The US Department of Labor estimates the cost of replacing an employee is one-third the new hire's salary. The figure includes direct costs associated with advertising, sign-on bonuses, headhunter fees, and overtime for remaining employees picking up the slack. Indirect costs would include the manager's time involved in recruitment, selection and training, and decreased productivity until the new employee comes up to speed (Michaud 2000, 26). Therefore, rewards of value approaching one-third of the salary of a key person are reasonable if it guarantees retention.

Personnel who indicate they are being lured away by the competition may be enticed to stay with some sort of meaningful reward. Interview the individual and find out what rewards they consider meaningful. In cases where the project manager has significant autonomy, as in Highly Projectized organizations, newly negotiated salaries could be matched to retain the employee, with possible employee sharing or simple contract work at an inflated labor rate.

People who are leaving because of fear may be influenced by the promise of job placement assistance at project's end, along with some sort of completion bonuses associated with “sticking it out.” Macy's department store offered discounts up to 50% off already reduced merchandise in addition to the regular 20% employee discount when they closed their store in Friendswood, Texas in 1996. Macy's also pro-rated the wages for salary + commission employees during the final weeks of the store closeout. The severance package for employees who “stuck-it-out” received two weeks pay plus another week's pay for each completed year of service.

Challenges to Thinking Outside the Box

The reason it is so important to identify the real value of the consequence of someone leaving is because the human resources department may have to be convinced to give a $5k bonus to someone who has already tendered their resignation.

It may also be difficult to convince an employee they will be supported during their job search after the project is complete. Specific and generous duration for support during the job search or severance will help convey trust.

Exercising your right to temporarily retain a “short-timer” employee may help complete the project, but just as in outsourcing, what does the company retain from the experience? Provisions must be made to retain/harvest corporate knowledge from the situation (Ruben 2000). Consider a formal mentoring policy for all outsourced work, where the outsourced worker is the mentor and a permanent employee is the mentee.

Conclusion

In conclusion, managing “flight risk,” or untimely attrition, requires the project manager to engage in sound risk management practices.

Include likelihood and consequence management in the planning phase of a project. The most logical place to start addressing concern is in the project planning and initiation phases when the staffing management plan is first considered. Page 97 of the PMBOK® Guide indicates the requirement for considering how to release project members when they are no longer needed on the project; serving the dual purpose of eliminating “make work” and improving morale by ensuring continued employment. Cost planning is also an area where consideration should be given to resource costs and their escalation in response to higher cost short-term labor as a contingency for reducing the consequences of flight risk.

Don't let unfounded rumors begin. The information distribution process ensures information is provided to project stakeholders in a timely manner (PMI 1996, 106), which could reduce the likelihood of rumors taking hold of the workforce. Finally, to pull it all together project integration management involves making tradeoffs among competing objectives and alternatives in order to meet or exceed stakeholder needs and expectations (PMI 1996, 39). In the case of flight risk, it's usually cost versus schedule or cost versus quality.

Plan retention strategies early. The best way to handle flight risk is the same for every other kind of risk: Be proactive, be sure of the risk's expected value, and know the symptoms that indicate the risk is realized. Proactively mitigate flight risk by focusing on employee retention strategies that utilize “sticky” rewards (those that make a lasting positive impact), to provide tangible reminders of the employee's hard work (Hutson 2000). That way you don't have to worry about personnel leaving in the first place. Basically, any “make-do” approach involves trying to hold on to people who have, at least emotionally, already separated. And so their commitment is lost, and the company is left with a sense of “buying” them, rather than rewarding for loyalty and commitment. And nobody is really satisfied. The old adage is still true: An ounce of prevention is worth a pound of cure.

Identify contingency reserves for flight risk. Set aside resources that are equivalent to some portion of the cost of loss. These costs may come from delayed completion of the schedule, higher labor costs for outsourcing, or personnel replacement. Historical data is available to estimate these costs. Set aside some fraction of those costs suitable to the project's propensity for risk. Identify the metrics that indicate the risk event is in progress, and also the timeframe when flight risk is greatest. During the execution phase, the performance reporting process supplies variance analysis to generate performance reports that identify and explain why more resources are spent than planned. Some tasks require a premium for retaining personnel for short durations.

Prepare a reassignment strategy and plan at the beginning of the project. Demonstrate your commitment to proactively address flight risk by spending the time and effort to address the most likely time frame, source, and consequence of the risk event; and then communicate it with the stakeholders. The action of planning will help to reduce the likelihood of flight risk because the very resources most at risk will have first hand knowledge of the commitment to complete the project on time, on budget, and to the required level of quality.

References

BLS. Bureau of Labor Statistics 2001. Online at http://stats.bls.gov/

CDC. US Center for Disease & Control 2001. Online at http://www.cdc.gov/

Cappelli, Peter. 2000. A Market-Driven Approach to Retaining Talent. Harvard Business Review 78 (1) (Jan./Feb): 103–111.

Gjertsen, Lee Ann. 2000. Temporary Workers Can Create Hidden Risks. National Underwriter 104 (20) (May 15): 10–11.

Hellriegel, Don. Slocum, John W. Woodman, and Richard W. 1998. Organizational Behavior, 8th ed. Cincinnati, OH.

Hutson, Darryl. 2000. New Incentives Are on the Rise. Compensation & Benefits Review 32 (5) (Sept./Oct.): 40–46.

Ivancevich, John M. and Glueck, William F. 1986. Foundations of Personnel/Human Resource Management 3rd ed. Plano, TX.

Michaud, Laura. 2000. Turn the Tables on Employee Turnover: Five Keys to Maximum Employee Retention. Manage 52(1) (Aug./Sept.): 26–27.

Nash, Kim S., and Mearian, Lucas. 2000. IT Workers at Oxford Health Consider CSC's Job Offers. Computerworld 34 (48) (November 27): 8.

PMI Standards Committee. 1996. A Guide to the Project Management Body of Knowledge. Upper Darby, PA: Project Management Institute.

Pritchard, Carl L. 1997. Risk Management: Concepts and Guidance. Arlington, VA. ESI International.

Ruben, Peter. 2000. Keep the Knowledge You're Paying For. Information Week 810 (October 30): 176–180.

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 or any listed author.

Proceedings of the Project Management Institute Annual Seminars & Symposium
November 1–10, 2001 • Nashville, Tenn., USA

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