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Risk - The Complete Tool Set
Risk Reduction or Containment
Fig. 6 - Risk Memorandum
In many cases, during the risk assessment process, the project manager and the team will be able to identify strategies to minimize or eliminate the risk factor. For example, if the team is perceived to have a high risk because of lack of experience in the development platform, the recruiting of experts or hiring a contractor can control the risk. All high risk factors that cannot be constrained or eliminated during the risk assessment sessions should have a Risk Memorandum developed for them. This should document the risk factor, the impact of the risk on the project, what actions can the Steering Committee and project sponsor take to assist in reducing the risk and, for high impact risks, a contingency plan. Figure 6 shows a sample form for this purpose.
Shooting the messenger
Often, Risk Memos are perceived as "negative" and, in fact, do focus on what can go wrong rather than what can go right. However, it is important for the Project Manager and the Project Sponsor to realize that proactive reduction of risk before the project starts is more effective and less expensive than re-active reduction of risk impact during the project.
By estimating the costs [people, dollars, time lost] of non-containment of the risk factor, the project manager can often help focus executives on the added value of proactive risk reduction. To be honest, the estimation of the cost of non-containment is often just a guess but any attempt to put a dollar value on the lack of action will help get attention to the risk minimization actions.
Two Cases of Contingency
In the early 1990's, two major Australian banks had $300 million plus projects fail within 6 months of each other.
One had in place a formal Contingency Plan that involved a controlled fall-back to an existing system and a tight control on the information distribution and communication about the failure internally and externally. As a result, while the media did mention the failure, the bank managed to effectively close-down the media coverage within a week.
The other bank had no formal contingency plan and lost control of the system fall-back and, more importantly, the media exposure.
As a result, the failure (a project called CS90) is still used as a case study in a number of MBA degrees 15 years later. It is mentioned even today by certain media, bank and financial commentators.
With a sense of déjà vu, another leading Australian bank announced a $400 million blow-out on an ERP project in 2002. It has also lost control on the media coverage. The more things change .. the more they stay the same (sic).
The pro-active reduction or elimination of risk in a project is a classic case of "win-win". The project's sponsor and clients win as they have a higher chance of success, the project manager and team win because they have a higher chance of success and a lower level of pain in the project.
What is significant is that many project managers, like Indiana Jones, face risks in their projects that are beyond their capability (organisationally, politically and financial) to control and manage. The technique of Risk Memorandums enables the people within the organisation with the right level of power the assist the project manager in managing the risks.
Should the Project Sponsor choose to ignore the Risk Memo and fail to assist the Project Manager in implementing the risk reduction strategies suggested, then, in the worst case, the Project Manager has performed their role in a professional manner. It is our experience, that the re-delegation or "buck-passing" of risk management to Project Managers is common.
The use of the associated analysis of Business Risks may help to obtain executive buy-in into the Risk Management process for projects. If by failing, a project may result in the C.E.O. having to defend his or her organisation on a T.V. current affair program, the C.E.O. may be a bit more interested in assisting in pro-active risk avoidance.