What is Project Risk Management

While on a recent trip to New Zealand to ramp up a new client, I took a little time after work to see some sights. Coincidently, I was also contemplating a series of posts on Project Risk Management. As serendipity would have it, I found a great example to illustrate several of the key concepts in Risk Management which includes a video of kids jumping into the Hātea river in New Zealand ...!

This is a video taken at the Hātea river, at the top of Whangārei Falls. The falls are just off the pictures to the right. When you watch the video you will see five brave young men in the tree to the right, standing between 10 and about 40 feet above the water.

Notice how they jump in one after the other. Some of the kids seem to be a bit more planned about how they jumped and landed in the water than the others. It's out of the frame, but the person on the top branch jumps and keeps his body straight as he lands!

Seem risky? It sure did to me! But they jumped in anyway. Then they all climbed out of the water smiling, and went back up the tree to do it again.

What is project risk?

So what does this have to do with Project Risk Management? Well, several things actually. Before I get into that, though, let me present the official definition of a Project Risk.

A Project Risk is an uncertain event or condition that, if it occurs, has a positive or negative effect on a project’s objectives.

What are the four steps in risk management?

Risk management includes these four steps: Identify, Analyze, Plan and Implement.

Identify

a. Briefly describe the risk

b. Give it a short name

c. Assign it an owner
Analyze

a. Determine/Document the risk drivers

b. Evaluate impact, probability, and exposure

c. Establish value rating (High/Medium/Low)

d. (Sometimes) merge with or supersede another risk

e. (On rare occasions) determine it is invalid
Plan

a. Evaluate mitigation options and determine which mitigations to implement

b. Establish a detailed mitigation plan, integrated with the overall project plan

c. Establish burn-down milestones (Milestones after which we re-evaluate the status and rating of the risk.)

d. (Sometimes) decide not to mitigate the risk, because the mitigation cost is too high compared to the value
Implement

Using the analogy of the kids jumping in the river we are able to look at a few aspect of project risk identification, analysis and implementation.

Project Objectives

Admittedly, I don’t know what these guys were thinking, but I can surmise their objective was to get their hearts pumping with a little burst of adrenaline. As in product development projects, it is the objective which creates the risk. There is no risk without objectives and objectives almost always come with risk.

Risk Identification and Analysis

Second, is the notion that an uncertain event or condition might make things go wrong, and turn an attempt at a little thrill into a terrible tragedy.

From the viewpoint of a guy from Colorado, where almost all rivers this small have very large boulders within a few feet of the surface, that condition seems pretty certain.

Which brings me to the third, and most important piece of this definition – uncertainty. These guys looked pretty certain they would be fine. Why? Because they knew something I didn’t. They knew the river was far deeper than it looked to me, at least in the spots they could easily enough jump into from where they were standing.

Planning and Risk Mitigation

As I stood there watching them, I gained a little knowledge, too. Just seeing them getting ready to jump, I learned that the river was probably deeper than it looked. Then a closer look at the worn branches of the tree, I learned that a lot of people before them had jumped too. Then when they jumped in, came out smiling, and climbed the tree again, I learned even more about the real conditions under the water.

In the course of about 1 minute, the knowledge I gained changed what looked like an act that had a certain negative outcome, into something that looked like a lot of fun. Still, I wouldn’t want to jump off that tree myself until I consulted with a few of the jumpers! I’d also want to swim around in the water to gain even more knowledge. And when I gained enough certainty (= knowledge) to finally try the jump, I’d start out learning even more on the lower branches before I tried the higher ones.

And so it is with project risks. We reduce potential negative impacts by gaining knowledge, by learning. It’s been said that “the product of product development is information,” and that is absolutely true. Once we have learned (generated information/knowledge) enough about what our customer wants, and how to build it and reliably deliver it for a low enough cost and high enough quality, then we have no remaining uncertainty and our product development project is finally complete. The physical product we deliver, and the profit we achieve, are simply the by-products of all of that learning.

Conclusion

Effective risk management means you must achieve a balance between being cautious, while simultaneously learning and moving the project forward quickly

And, like product development, we can’t learn everything and eliminate all of the risk without spending entirely too much time at it. The trick is to learn – both carefully and quickly – in the right balance. The guys in these pictures were still taking risks, but they were careful to reduce the risk enough to come out smiling. The same is true in product development projects – with the right balance of speed and deliberate learning, you’ll come out smiling.

Stay tuned as we delve more deeply into these, and several other important aspects of effective Project Risk Management in the next post.

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