A Pragmatic Model for Managing Project Risks

So now what? If our daily experience and even a research report shows that formal risk management methods are not applicable to small and medium size projects, are there any alternatives available?

Well let’s explore a pragmatic model for small & medium projects. First let’s consider a real life situation of moving you home.

Just say you bought a new apartment from a property developer 9 months ago. It’s scheduled to close 3 months later. You plan to move to the new apartment as soon as possible. What’d you do to minimize risks for this project?

Below is a list of typical tasks for your home relocation project:

1. Hire a solicitor
2. Negotiate and confirm a bank mortgage
3. Perform pre-closing examination of the apartment
4. Conduct formal closing
5. Select and hire a contractor for minor renovation
6. Contractor performs renovation
7. Order and install utilities such as electricity, gas, phone, internet, TV
8. Buy and deliver furniture
9. Move to the new apartment

Examples of risk include:

• Bank mortgage cannot be secured;
• Apartment quality not up to expectation;
• Developer postpones closing date;
• Contractor fails to perform;
• Renovation requires longer time due to contractor failure or unexpected events;
• You are made redundant by your employer before closing;
• You move to a new job, and so on.

There are also risks that are quite unlikely to happen, but still exist:

• Developer bankrupt; bank withdraws mortgage;
• Contractor sick or other accidents; and so on.

Typical approach for dealing with risks of this scale:

• Gain as much knowledge and lessons learnt by talking to your friends who have previous experience or professionals such as property agents or solicitors.
• Identify critical tasks and milestone dates (e.g., “Secure bank mortgage”, “Formal closing”, “Renovation complete”, “Move to the new apartment”). Try to schedule them in proper sequence and with as much buffers as possible.
• For non-critical activities (such as “Buy and deliver new furniture”), try to schedule them with a large comfort margin or better with no dependency to other tasks.
• During the project, monitor closely the progress of critical activities, and control them carefully.
• Minimize changes (e.g. a new design proposed by your contractor in the middle of renovation, changing your job etc.) within the life cycle of the project.
• For risks that are unlikely to happen (e.g. Developer bankruptcy), do nothing until they happen.

Note that (1) we start identifying risks and countermeasures by focusing on the WBS or task list; (2) we don’t apply a risk-by-risk analysis and response planning approach, instead we just apply an overall framework of careful WBS planning and close monitoring during execution; (3) we adopt reactive approach for those unlikely risks.

Hey, isn’t this common sense? Yes this is exactly the point we are trying to bring up. Risk management is not rocket science. Although there are all those formal methods, projects of smaller size only require some careful planning based on past experience and common sense. This is the first step to take away the myth surrounding risk management.

We’ll argue later that the same approach can be applied to projects in a business setting.

To be continued…

Copyright © 2008 Knowledge Century Limited.