Risk Return Trade offs: Strategic Projects Results have Big Risks

Dick Billows, PMP
Dick Billows, PMP
CEO 4pm.com

Risk Return Trade offs tell us that the bigger the business value we strive to deliver on for a project, the larger the risks we will face getting there. As an example, say we are doing a customer service improvement project  aimed at improving our customers experience when the contact our customer service reps. If now, 80% of the customers rate us a providing poor customer service we might plan for a project to reduce that 80% poor rating to 40%.  That’s a bog improvement but even if we hit the goalExecutives don’t like project managers to mention risks or much less take time to plan for them. They prefer to think a good project manager can execute a project and just make sure nothing bad happenThat rarely happens.

But if the project manager presents hard data on the risk’s impact in days and dollars and likelihood of a risk occurring; managers will listen. Project manager should not try to sell a sponsor on risk planning or risk avoidance; that sounds too academic. However, hards data about the consequences of a risk occurring is an approach that works. We let the boss see the risk tradeoff of doing nothing about the risks. The project manager’s approach to use their risk data about the consequences of doing nothing to convince executives of the benefits of planning for risks. Risk Management Main Page

One of the project manager’s accountabilities is to spread the project management culture in the organization. And risk tradeoffs are part of that effort. First the PM should identify the potential positive or negative risks that might occur. Second, the PM should specify the level of risk – low, medium, or high. These should be based on the PM Office criteria, if they are available. If not, the PM should specify these criteria in their risk management plan. The possibility of a risk occurring should be shown as a percentage. The value of the risk might be estimated as hours or dollars and should also be included in the plan. Let’s look at two examples of risk categories below. Risk Responses

Risk\Duration Category

mohtable1

There should be a plan for responding to the risk once it occurs. For example, executives might accept increasing the project duration by 148 hours. Or they might want a different response plan such as increasing the project cost or lowering the project scope.  Small Project Risk Management

mohtable2In the example above, the PM is showing the executives the list of positive and negative risks and their impact on the project. The project manager is asking for approval to add $7,000 to the project cost to mitigate the uncertainty.
Once the PM provides executives with all the risk possibilities, their impacts, and suggested responses, the executives often accept the PM’s plan. On the other hand, they may discuss additional ideas for the PM to analyze.  Presenting Your Risk Plan

You can learn how to analyze and manage project risks in our online Project Management Tools course. You work individually with your instructor and get personal coaching at your convenience.

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Author: Dick Billows, PMP

Dick has more than 25 years of project and program management experience throughout the US and overseas. Dick was a partner in the 4th largest professional firm and a VP in a Fortune 200 company. He trained and developed 100's of project managers using his methodology. Dick is the author of 14 books, over 300 articles and director/producer of 60 short project management videos. He and a team of 25 project managers work with client companies & students across the US and in Europe, South America, Asia and the Middle East. They have assisted over 300 organizations in improving their project performance. Books by Dick Billows are on Amazon.com