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
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More articles on Project Management:
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as fair as possible. The negotiation itself can present conflicts of interest. What are those conflicts?
- Communication Traps for Virtual Teams: I
- Virtual teams encounter difficulties that rarely confront face-to-face teams. What special challenges
do they face, and what can we do about them?
- Guidelines for Sharing "Resources"
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- Unnecessary Boring Work: II
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- Wishful Interpretation: II
- Wishful "thinking," as we call it, can arise in different ways. One source is the pattern
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Here's Part II of an inventory of ways our preferences and wishes affect how we interpret the world.
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- When making contributions to meeting discussions, we're sometimes interrupted. Often, the interruption is beneficial and saves time. But some people constantly interrupt their peers or near peers, disrespectfully, in a pattern that compromises meeting outcomes. How can we deal with chronic peer interrupters? Available here and by RSS on May 30.
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- Technical Debt Management: Making the Business Case
- This program
outlines the steps necessary for deploying a program for rational management of technical debt. For
many organizations, adopting a program for rationally managing technical debt entails organizational
change. And unlike some organizational changes, this one touches almost everyone in the organization,
because technical debt isn't merely a technical problem. Technical debt manifests itself in technological
assets, to be sure, but its causes are rarely isolated to the behavior and decisions of engineers. We
can't resolve the problem of chronically excessive levels of technical debt by changing the behavior
of engineers alone. Technical debt is the symptom, not the problem. In this program we outline the essential
elements of an effective business case for adopting a rational technical debt management program. But
this business case, unlike many business cases, cannot be captured in a document. We must make the case
not only at the leadership level of the organization, but also at the level of the individual contributor.
Everyone must understand. Everyone must contribute. We explore five issues that make technical debt
so difficult to manage, and develop five guidelines for designing technical debt management strategies
for the modern enterprise. Read more about
this program. Here's a date for this program:
- Wyndham Springfield City Centre, 700 East Adams Street, Springfield,
Illinois 62701: June 12,
Monthly Meeting, Central
Illinois Chapter of the Project Management Institute. Register now.
- Wyndham Springfield City Centre, 700 East Adams Street, Springfield, Illinois 62701: June 12, Monthly Meeting, Central Illinois Chapter of the Project Management Institute. Register now.
- The Race to the South Pole: The Power of Agile Development
- 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. Lessons abound. Among the more important
lessons are those that demonstrate the power of the agile approach to project management and product
development. Read more about this program. Here's
a date for this program:
- Fifth Third Bank, 5717 Madison Road, Cincinnati, OH 45227:
Monthly Meeting, Cincinnati
chapter of the International Institute of Business Analysis. Register now.
- Fifth Third Bank, 5717 Madison Road, Cincinnati, OH 45227: July 17, Monthly Meeting, Cincinnati chapter of the International Institute of Business Analysis. Register now.
- 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.