A Pragmatic Model for Managing Project Risks （2）

After a two-week summer break, let’s get back to our pragmatic model for managing project risks.

First a few rules:

• Apply 80/20 - By 80/20 we mean this model does not try to do everything. Instead we focus on the activities that yield the most results.
  
• Optimize total cost of risk management – We try to optimize the cost of prevention, mitigation, transference and acceptance. We even allow passive acceptance as a valid response if it generates less cost that doing something else. Passive acceptance means doing nothing, and if those risks happen, they happen.
  
• Target small and medium projects – A significant proportion of business and technology projects are small and medium projects. Well we admit that the definition is not clear. Let’s just say any projects less than US$ 1m value are considered small and medium. Our argument is there is no need to apply everything in those formal methods to these projects.

An outline of our pragmatic model is shown below:














We divide a project into three distinct phases: Concept/Approval, Kickoff, and Execution. We propose several key risk activities during these three phases.

Concept/Approval Phase

Business Risk Review
Key Activities

• Business Case
• Stakeholder Analysis
• Scenario Analysis
• NewspaperTest

Project sponsors and top management reviews the project’s business case, potential financial return, tangible and intangible benefits, and risks involved. Risks can come from financial impact, stakeholders’ responses, and potential damage to organization’s public image if anything goes wrong, and so on.

Particular attention, in my opinion, should be paid to negative publicity generated. There have been several recent business projects that went out of hand, eventually leading to extremely damaging responses.

A local supermarket chain launched an initiative to charge 50 cents for each plastic bag handed out to their customers. Customers’ feedbacks were extremely negative. There were even reports of sporadic instances that some customers quarreled with cashiers trying to get free plastic bags. The initiative was eventually cancelled one week later by the supermarket chain without proper explanation, resulting in even bigger outcry from the public. From a project management perspective, we would argue that implementation plan had not been well thought out (measures such as phase lead-in and publicity campaign were missing). More importantly, risk of possible poor publicity had not been highlighted to senior management. Had scenario analysis been performed, senior managers surely would have been brought to this likely outcome. The likely decision would have been a no-go.

The key objective of performing risk activities during this stage is to make go/no-go decision for the project.

To be continued…

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