In Part I and Part II, we explored five ineffective strategies and two somewhat more effective strategies for managing risk. In this Part III, we complete our little catalog with three of the more effective strategies.
- Transformation strategies entail exchanging the risk or risks in question for a different risk or risks. After the transformation, the asset at risk might be different, or it might be imperiled in a different way, or both. For example, if we're traveling from A to B, and two routes are available, Route 1 might be more congested, while Route 2 might be more hazardous. If we take Route 1 we might lose time; if we take Route 2 we might lose the vehicle and its passengers.
- Slogan: "That risk vanishes if we use this alternative approach, but then we would have to deal with this other risk instead."
- Advantage: If we can't deal with risk event A, but we can deal with risk event B, then we can proceed with confidence if we take an approach in which risk event A cannot occur, but risk event B might.
- Danger: Dealing with risk usually entails estimation. Our estimates can be wrong, either because of the errors inherent in estimation, or because we mislead ourselves.
- In compensation strategies, we arrange that if the risk event occurs, we make up for it somehow.
- Slogan: "If we take these steps, then these good things will happen if the risk materializes."
- Advantage: In compensation strategies, we
arrange that if the risk event
occurs, we make up
for it somehowEven if we can't sufficiently limit the probability or size of the loss, we can proceed with confidence, because the net value of the compensation minus the expected value of the loss is acceptable.
- Danger: We might be so emotionally committed to proceeding that we overestimate the value of the compensation.
- In transfer strategies, we arrange to have some other person or organization (the counter party) bear the consequences of the risk. When the transfer is by mutual agreement, the parties usually exchange some resources as well. Purchasing insurance is an example of a risk transfer strategy.
- Slogan: "If we do this, then we don't have to deal with that risk. They will."
- Advantage: Transferring risk to another party can relieve us of the burden of planning for the risk. The sum of both the resources required for such planning and the expected value of the loss can exceed the cost of transferring the risk.
- Danger: The counter party might not be strong enough, or ethical enough, to cover the loss. When counter parties are coerced into accepting the risk, their reliability can be dubious. Be certain that the transfer is real.
Project risk is inherently imprecise, both numerically and conceptually. By far, the greatest risk is the risk of overlooking or misunderstanding a significant risk, including this one. Ironically, I have never seen it mentioned in a risk plan. First in this series Top Next Issue
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:
- Seeing Through the Fog
- When projects founder, we're often shocked — we thought everything was moving along smoothly.
Sometimes, with the benefit of hindsight, we can see that we had — or could have had — enough
information to determine that trouble was ahead. Somehow it was obscured by fog. How can we get better
at seeing through the fog?
- Seven Ways to Get Nowhere
- Ever have the feeling that you're getting nowhere? You have the sense of movement, but you're making
no real progress towards the goal. How does this happen? What can you do about it?
- Why Scope Expands: II
- The scope of an effort underway tends to expand over time. Why do scopes not contract just as often?
One cause might be cognitive biases that make us more receptive to expansion than contraction.
- Symbolic Self-Completion and Projects
- The theory of symbolic self-completion holds that to define themselves, humans sometimes assert indicators
of achievement that either they do not have, or that do not mean what they seem to mean. This behavior
has consequences for managing project-oriented organizations.
- More Obstacles to Finding the Reasons Why
- Retrospectives — also known as lessons learned exercises or after-action reviews — sometimes
miss important insights. Here are some additions to our growing catalog of obstacles to learning.
Forthcoming issues of Point Lookout
- Coming February 28: Narcissistic Behavior at Work: I
- Briefly, when people exhibit narcissistic behavior they're engaging in activity that systematically places their own interests and welfare ahead of the interests and welfare of anyone or anything else. It's behavior that threatens the welfare of the organization and everyone employed there. Available here and by RSS on February 28.
- And on March 7: Narcissistic Behavior at Work: II
- Narcissistic behavior at work threatens the enterprise. People who behave narcissistically systematically place their own interests and welfare ahead of anyone or anything else. In this Part II of the series we consider the narcissistic preoccupation with superiority fantasies. Available here and by RSS on March 7.
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- The Power Affect: How We Express Our Personal Power
- Many people who possess real organizational power have a characteristic demeanor. It's the way they project their presence. I call this the power affect. Some people — call them power pretenders — adopt the power affect well before they attain significant organizational power. Unfortunately for their colleagues, and for their organizations, power pretenders can attain organizational power out of proportion to their merit or abilities. Understanding the power affect is therefore important for anyone who aims to attain power, or anyone who works with power pretenders. Read more about this program.