Discussing risk in general terms is always difficult, because many professions have their own ways of thinking about it. For now, let's regard risk as the chance of losing an asset. We measure the chance as a probability. We measure the asset in units of value.
If the probability of loss in a given time interval is P, and the value of the asset is V, the expected value of loss in that time interval is PV. In a large number of identical trials, our average loss per trial would be PV.
Sound decisions about enterprise resources do consider risk. For example, in estimating a project budget, we might consider the possibility that one of our suppliers might deliver a subsystem three months late. To manage this risk, we might reserve resources to deal with it if it occurs. If the cost of dealing with this event is V, and the probability of it occurring is P, then the reserves required are PV.
That's one example of a strategy for dealing with a risk. Fortunately, it isn't the only strategy available, and in many cases we can do much better. Here's Part I of a summary of the possible strategic options for dealing with risk, emphasizing ineffective (but very common) approaches.
- Those in denial are those who reject the reality of the risk event.
- Slogan: "That'll never happen. You're such a worrier!"
- Advantage: Denial lets Those in denial are those
who reject the reality
of the risk eventus feel that preparation is unnecessary, because there's no risk. It can be a comforting illusion, especially for those reluctant to allocate resources to managing risk.
- Danger: If the risk event occurs, we're unprepared. Worse, we can become disoriented when we find that our view of the world is fiction.
- Shock happens when we're blindsided by the unexpected.
- Slogan: "OMG, nobody could've anticipated that."
- Advantage: If the unexpected doesn't happen, we can remain in a state of blissful ignorance.
- Danger: If the unexpected happens too late for us to take remedial action, disaster is possible.
- Acceptance is the strategy for those who don't want to prepare.
- Slogan: "That might happen. We'll deal with it then."
- Advantage: It requires no advance resource allocation. If the risk event doesn't occur, no resources are expended.
- Danger: It can lead us to believe that we have less need for resources than we actually do. Acceptance is a prudent strategy only when PV is very small.
- This approach happens when we're so distracted by immediate events that we cannot plan for future risks.
- Slogan: "Heavens! We've been meaning to plan for that. We clean forgot!"
- Advantage: By focusing our resources elsewhere, we do accomplish some tasks. Without a risk plan, allocating resources to risk management becomes unnecessary.
- Danger: If risk events arrive before we can allocate resources to risk planning, the risk response can be inadequate, and full-scale disaster is possible.
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:
- Make a Project Family Album
- Like a traditional family album, a project family album has pictures of people, places, and events.
It builds connections, helps tie the team together, and it can be as much fun to look through as it
is to create.
- Nine Positive Indicators of Negative Progress
- Project status reports rarely acknowledge negative progress until after it becomes undeniable. But projects
do sometimes move backwards, outside of our awareness. What are the warning signs that negative progress
might be underway?
- Project Improvisation and Risk Management
- When reality trips up our project plans, we improvise or we replan. When we do, we create new risks
and render our old risk plans obsolete. Here are some suggestions for managing risks when we improvise.
- Beyond Our Control
- When bad things happen, despite our plans and our best efforts, we sometimes feel responsible. We failed.
We could have done more. But is that really true? Aren't some things beyond our control?
- Managing Non-Content Risks: I
- When project teams and their sponsors manage risk, they usually focus on those risks most closely associated
with the tasks — content risks. Meanwhile, other risks — non-content risks — get less
attention. Among these are risks related to the processes and politics by which the organization gets
Forthcoming issues of Point Lookout
- Coming May 29: Newtonian Blind Alleys: II
- Some of our decisions don't turn out well. The nature of our errors does vary, but a common class of errors is due to applying concepts from physics originated by Isaac Newton. One of these is the concept of spectrum. Available here and by RSS on May 29.
- And on June 5: I Could Be Wrong About That
- Before we make joint decisions at work, we usually debate the options. We come together to share views, and then a debate ensues. Some of these debates turn out well, but too many do not. Allowing for the fact that "I could be wrong" improves outcomes. Available here and by RSS on June 5.
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- 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.