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Guest post by Mike Clayton

Why Every Project Manager needs to Understand Risk

Project management is a discipline born from necessity.  If projects were not so challenging, we wouldn’t need a separate toolkit and processes.  But we do need them, because when we try to create change under constraints like schedule, performance and budget, we face the unknown.

Your response as a project manager is to define and plan your project with care, gathering all available data and then applying your experience, expertise and reasoning to generate a plan.

Planning Fallacy

Daniel Kahneman and Amos Tversky described “planning fallacy” as the consistent belief that you can deliver to a schedule – even when you have a track record of over-runs.  Believing your plan is an error almost as serious as failing to make one in the first place.

“Plans are worthless, but planning is everything”
President Eisenhower

Shift happens! Things go wrong.  The universe is no respecter of your plans.

Risk Management

So a second discipline – deeply intertwined with project management – is born of the same necessity: Risk Management.  A risk can be defined as:

“uncertainty that can affect outcomes”

Notice how this definition contains the two principal components of risk: uncertainty, which is measured by likelihood, and impact, which can be measured in many ways: financial, schedule, reputational, or the level of disruption to your project, for example.  Uncertainty arises for many reasons.  Here are seven of the most common:

1. Projects are one-off endeavours, creating new products, services, assets or processes.  There is no specific history or experience to call upon when you are planning.
2. Planning assumptions can be flawed due to lack of information or data, or incorrect information or data, or faulty interpretation of the information or data you have.
3. You may miss something important in your planning, which you either failed to identify, identified but missed the significance, or could never reasonably have known it.
4. Someone intervenes in an unexpected manner – unexpected because either your analysis of your stakeholders missed what should have been predictable, or because sometimes people act in an unpredictable manner.
5. A genuinely unexpected – possibly even unforeseeable – event occurs.  If it was really unforeseeable, it is often referred to as a “black swan” event.
6. A predictable event occurs, but its predictability extends to insufficient precision, rendering planning impossible.  Extreme weather and natural events are in this category: we know earthquakes happen in certain places, but cannot yet anticipate precisely where and when, and to what extent.
7. Plain old human error – someone makes a mistake.

For all of these reasons, Project Management students need to make a careful study of risk management, and learn to feel comfortable with uncertainty.  You need to be able to identify, analyse and plan for risk.

This is why I wrote “Risk Happens! Managing Risk and Avoiding Failure in Business Projects”.  It is written with new and less experienced project managers in mind, but I believe that there is plenty of material that experienced professionals will find useful and thought-provoking.  You can find out more at http://riskhappens.co.uk.

Win a Copy of Risk Happens!

My particular focus in training project managers has always been on practical tools and techniques.  I have carried this attitude into Risk Happens!  I am interested in what you think are the best – and most innovative – risk management tools and techniques.  Contribute your ideas at the end of the post and Josh and I will award the best response with a complimentary copy of Risk Happens!

You have until October 31, 2011 to win so leave a comment now!

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