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:
- Status Risk and Risk Status
- One often-neglected project risk is the risk of inaccurately reported status. That shouldn't be surprising,
because we often fail to report the status of the project's risks, as well. What can we do to better
manage status risk and risk status?
- Nine Project Management Fallacies: IV
- Some of what we "know" about managing projects just isn't so. Understanding these last three
of the nine fallacies of project management helps reduce risk and enhances your ability to complete
- 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.
- Projects as Proxy Targets: II
- Most projects have both supporters and detractors. When a project has been approved and execution begins,
some detractors don't give up. Here's Part II of a catalog of tactics detractors use to sow chaos.
- Unnecessary Boring Work: I
- Work can be boring. Some of us must endure the occasional boring task, but for many, everything about
work is boring. It doesn't have to be this way.
Forthcoming issues of Point Lookout
- Coming January 24: Understanding Delegation
- It's widely believed that managers delegate some of their own authority and responsibility to their subordinates, who then use that authority and responsibility to get their work done. That view is unfortunate. It breeds micromanagers. Available here and by RSS on January 24.
- And on January 31: Nine Brainstorming Demotivators: I
- The quality of the output of brainstorming sessions is notoriously variable. One source of variation is the enthusiasm of contributors. Here's Part I of a set of nine phenomena that can limit contributions to brainstorm sessions. Available here and by RSS on January 31.
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- Person-to-Person Communications: Models and Applications
- When we talk, listen, send or read emails,
read or write memos, or when we leave or listen to voice mail messages, we're communicating person-to-person.
And whenever we communicate person-to-person, we risk being misunderstood, offending others, feeling
hurt, and being confused. There are so many ways for things to go wrong that we could never learn how
to fix all the problems. A more effective approach avoids problems altogether, or at least minimizes
their occurrence. In this very interactive program we'll explain — and show you how to use —
a model of inter-personal communications that can help you stay out of the ditch. We'll place particular
emphasis on a very tricky situation — expressing your personal power. In those moments of intense
involvement, when we're most likely to slip, you'll have a new tool to use to keep things constructive.
Read more about this program. Here's a date for this
- Embassy Suites by Hilton Jacksonville Baymeadows, 9300 Baymeadows
Road, Jacksonville, Florida, 32256, USA: January 15,
Monthly Meeting, Northeast Florida Chapter of the Project Management Institute. Register now.
- Embassy Suites by Hilton Jacksonville Baymeadows, 9300 Baymeadows Road, Jacksonville, Florida, 32256, USA: January 15, Monthly Meeting, Northeast Florida Chapter of the Project Management Institute. Register now.
- Ten Project Management Fallacies: The Power of Avoiding Hazards
- Most of what we know about managing projects is useful and effective, but some of what we know "just ain't so." Identifying the fallacies of project management reduces risk and enhances your ability to complete projects successfully. Even more important, avoiding these traps can demonstrate the value and power of the project management profession in general, and your personal capabilities in particular. In this program we describe ten of these beliefs. There are almost certainly many more, but these ten are a good start. We'll explore the situations where these fallacies are most likely to expose projects to risk, and suggest techniques for avoiding them. Read more about this program. Here's a date for this program:
- 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. Here's a date for this program: