Discussing risk in general terms is always difficult, because many professions have their own ways of thinking about it. For now, let's regard risk as the chance of losing an asset. We measure the chance as a probability. We measure the asset in units of value.
If the probability of loss in a given time interval is P, and the value of the asset is V, the expected value of loss in that time interval is PV. In a large number of identical trials, our average loss per trial would be PV.
Sound decisions about enterprise resources do consider risk. For example, in estimating a project budget, we might consider the possibility that one of our suppliers might deliver a subsystem three months late. To manage this risk, we might reserve resources to deal with it if it occurs. If the cost of dealing with this event is V, and the probability of it occurring is P, then the reserves required are PV.
That's one example of a strategy for dealing with a risk. Fortunately, it isn't the only strategy available, and in many cases we can do much better. Here's Part I of a summary of the possible strategic options for dealing with risk, emphasizing ineffective (but very common) approaches.
- Those in denial are those who reject the reality of the risk event.
- Slogan: "That'll never happen. You're such a worrier!"
- Advantage: Denial lets Those in denial are those
who reject the reality
of the risk eventus feel that preparation is unnecessary, because there's no risk. It can be a comforting illusion, especially for those reluctant to allocate resources to managing risk.
- Danger: If the risk event occurs, we're unprepared. Worse, we can become disoriented when we find that our view of the world is fiction.
- Shock happens when we're blindsided by the unexpected.
- Slogan: "OMG, nobody could've anticipated that."
- Advantage: If the unexpected doesn't happen, we can remain in a state of blissful ignorance.
- Danger: If the unexpected happens too late for us to take remedial action, disaster is possible.
- Acceptance is the strategy for those who don't want to prepare.
- Slogan: "That might happen. We'll deal with it then."
- Advantage: It requires no advance resource allocation. If the risk event doesn't occur, no resources are expended.
- Danger: It can lead us to believe that we have less need for resources than we actually do. Acceptance is a prudent strategy only when PV is very small.
- This approach happens when we're so distracted by immediate events that we cannot plan for future risks.
- Slogan: "Heavens! We've been meaning to plan for that. We clean forgot!"
- Advantage: By focusing our resources elsewhere, we do accomplish some tasks. Without a risk plan, allocating resources to risk management becomes unnecessary.
- Danger: If risk events arrive before we can allocate resources to risk planning, the risk response can be inadequate, and full-scale disaster is possible.
Projects never go quite as planned. We expect that, but we don't expect disaster. How can we get better at spotting disaster when there's still time to prevent it? How to Spot a Troubled Project Before the Trouble Starts is filled with tips for executives, senior managers, managers of project managers, and sponsors of projects in project-oriented organizations. It helps readers learn the subtle cues that indicate that a project is at risk for wreckage in time to do something about it. It's an ebook, but it's about 15% larger than "Who Moved My Cheese?" Just USD 19.95. Order Now! .
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More articles on Project Management:
- Emergency Problem Solving
- In emergencies, group problem solving is unusually challenging, especially if lives, careers, or companies
depend on finding a solution immediately. Here are some tips for members of teams that are solving problems
- Publish an Internal Newsletter
- If you're responsible for an organizational effort with many stakeholders, communicating with them is
important to success. Publishing an internal newsletter is a great way to keep them informed.
- Ground Level Sources of Scope Creep
- We usually think of scope creep as having been induced by managerial decisions. And most often, it probably
is. But most project team members — and others as well — can contribute to the problem.
- Scope Creep and the Planning Fallacy
- Much is known about scope creep, but it nevertheless occurs with such alarming frequency that in some
organizations, it's a certainty. Perhaps what keeps us from controlling it better is that its causes
can't be addressed with management methodology. Its causes might be, in part, psychological.
- False Summits: II
- When climbers encounter "false summits," hope of an early end to the climb comes to an end.
The psychological effects can threaten the morale and even the safety of the climbing party. So it is
in project work.
Forthcoming issues of Point Lookout
- Coming May 31: Unresponsive Suppliers: III
- When suppliers have a customer orientation, we can usually depend on them. But government suppliers are a special case. Available here and by RSS on May 31.
- And on June 7: The Knowledge One-Upmanship Game
- The Knowledge One-Upmanship Game is a pattern of group behavior in the form of a contest to determine which player knows the most arcane fact. It can seem like innocent fun, but it can disrupt a team's ability to collaborate. Available here and by RSS on June 7.
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- Creating High Performance Virtual Teams
- Many people experience virtual teams as awkward, slow, and sometimes
frustrating. Even when most team members hail from the same nation or culture, and even when they all
speak the same language, geographic dispersion or the presence of employees from multiple enterprises
is often enough to exclude all possibility of high performance. The problem is that we lead, manage,
and support virtual teams in ways that are too much like the way we lead, manage, and support co-located
teams. In this program, Rick Brenner shows you how to change your approach to leading, managing, and
supporting virtual teams to achieve high performance using Simons' Four Spans model of high performance.
Read more about this program. Here's an upcoming date
for this program:
- Baci Grill, 134 Berlin
Road, Berlin, CT 06416: September 19,
Monthly Meeting, Southern New England Chapter of the Project Management Institute. Register now.
- Baci Grill, 134 Berlin Road, Berlin, CT 06416: September 19, Monthly Meeting, Southern New England Chapter of the Project Management Institute. Register now.
- The Race to the South Pole: Ten Lessons for Project Managers
- On 14 December 1911, four men led by Roald
Amundsen reached the South Pole. Thirty-five days later, Robert F. Scott and four others followed. Amundsen
had won the race to the pole. Amundsen's party returned to base on 26 January 1912. Scott's party perished.
As historical drama, why this happened is interesting enough, but to organizational leaders, business
analysts, project sponsors, and project managers, the story is fascinating. Lessons abound. Read
more about this program. Here's an upcoming date for this program:
- CTCPA, 716 Brook Street,
Rocky Hill, CT 06067: September 20,
Full-day Workshop, Southern New England Chapter of the Project Management Institute. Register now.
- CTCPA, 716 Brook Street, Rocky Hill, CT 06067: September 20, Full-day Workshop, Southern New England Chapter of the Project Management Institute. Register now.