The project management world is increasingly complex and so is investment decision making. Whether you are working on transformative change programs or investment projects, you are likely to be facing ever-increasing complexities within the work, the environment and the team.
Uncertainty is everywhere, and at the heart of many change programs. Not knowing exactly how a project is going to turn out forces teams to find ways to deal with an uncertain future and plan for various potential outcomes.
Risk, however, is normally recorded on a spreadsheet with high level, sketchy details and discussed briefly at an exec committee. Or, at the other end of the spectrum, is highly project related and discussed by project team members.
Both are necessary. But by creating a link between the two we can leverage risk management processes to improve investment decision making at all levels.
Risk management needs to move from being a compliance activity to being a management tool that an organization uses to drive better decision-support information and return on investment for capital projects.
The Starting Point for Risk Management
You are probably already doing the following risk management activities, led by project teams or the PMO:
- Risk identification
- Risk assessment
- Risk reporting
These activities give project leaders an evaluation of the exposure to risk for an individual project. When aggregated, the risks identified provide a summary of the risk exposure across all programs of work.
By shifting to a position where management teams can use the information to better understand uncertainty you can start to provide greater value from the risk management activity.
The key question then becomes, “What can I do to reduce uncertainty and increase the predictability of projects?” If you can increase the predictability of project outcomes, you can increase your return on the investment in those projects as you’ll be delivering results closer to the initial business case.
Leveraging Risk Management
So, what does leveraging risk management look like?
Some activities remain the same: you’ll still identify and assess risks, and report on them.
However, the key difference to drive business value is to link risk management to performance. Which are the risks that are going to materially impact the project performance or outputs? Quantify the exposure that these present, prioritizing those that have clear associations with project key success factors or other internal measures.
Aggregate these risks to give you a position for the project or program overall. Then you can focus on mitigation and management plans to address the risk of performance variation. In other words, you are trying to optimize the chance of a higher value delivery from your end result because you are reducing the likelihood of poor performance across a range of risk factors.
You’ll know when you have achieved a holistic approach to leveraging risk because you’ll see:
- Risk management plans and activities linked to project or PMO metrics
- Projects and programs including risk budgets in their business cases
- Risks ‘rolled up’ so that there’s a clear line between risks identified at project level and those presented to the execs, along with clarity about what is being done about them
- Feedback coming down the organization relating to risk appetite, with strategic guidance about investment decisions based on the risk profile of a business case or project.
Tying Risk Management to Business Cases
The great thing about this process is that you can do it at any point in the project life cycle. Work it through based on the known risks at the time the business case is produced to build the mitigation activities into the initial project plan and provide the best decision-support information for the approval decision.
Arguably, this is the most valuable point in the life cycle to be leveraging risk management as a tool, because it will help your senior team make the best investment decisions. It’s easy to get started: amend your business case template to include more analysis about the risks of a project, along with risk management plans and a risk budget. You can also include a statement about where this project would fit in the overall risk profile of the existing portfolio, to help decision makers know if, by approving this project, they are opening themselves up to a portfolio that is accepting of more risk than previously.
You can still use this approach during the project life cycle with newly emerging risks in order to better assess the project or program’s current risk profile. By doing the activities continuously, and building it into the way projects are managed, you’ll have early sight of any projects taking on a risk profile beyond what the organization is prepared to counter, and you can make strategic decisions about the future of that project in a timely fashion.
Too often companies look at risk as simply something bad. However, the upside of uncertainty is opportunity that might go unnoticed if your risk management processes don’t pick it up.
A further advantage of building risk management into the fabric of your processes is that you can spot these opportunities and do something about them to capitalize on the benefits they could offer your organization.
Proactive Risk Management = Better Business Results
Taking a balanced, proactive approach to risk management can result in better, more thought-through investment cases which in turn will prompt better investment decision making. That leads to investment in the projects and programs that will best support business goals and drive return on that investment.
You’ll get visibility of projects which are becoming more risky and your PMO can aggregate and report the information that ties back to business metrics and that really makes a difference.
Ultimately, what you are looking for is a risk management approach that can be judged by the impact it has on business results. It should not be how many spreadsheets are discussed by the Board or how many risks a project manager can close.