If project management were an off-road 4×4 expedition, where teams had to plot a course through the unknown, cost and schedule contingency would be akin to the number of spare fuel cans you can carry successfully to complete the trip.
Using this analogy, projects also have constrained or limited resources to deliver on their commitments. So your imaginary expeditionary team must predict the optimum number of Jerry cans that can be carried and determine if that capacity is enough to execute. This notion of contingency analysis shows that when planning or budgeting, we must account for foreseeable risk and factor in the optimal route required with the minimum number of possible detours. This level of contingency planning allows your team to be competitive with others.
Any forecast used to establish baseline budgets will be imperfect, whether for reserve fuel supplies or project contingencies. No one can predict the future with 100% accuracy. Risk is not solved with a calculation. Risk management requires effective communication, among all team members, throughout project delivery.
Make no mistake, meaningful and accurate risk analysis is a critical first step for establishing credible and defensible baseline plans. However, teams have less chance of success if those plans are not revisited and revised each reporting cycle. Project leaders need to ask: are some foreseen risks not occurring? Are there unexpected risks now emerging? How does the reconciliation of known and emerging risks impact the project team’s estimate of the remaining contingency plan? “A holistic approach positions risk management as an essential bridge between strategic and tactical levels”¹.
Risk management is too important to be left to risk managers. Risk management is of limited worth if treated as a checkbox exercise. Risk management is not a bolt-on solution and must be built into all project delivery procedures. “A risk intelligent organization relies on its individuals throughout the organization to make educated decisions that appropriately factor in applicable risks.”² Risk management needs to be a way of thinking that permeates through all levels of the company and project environments.
Project teams frequently confuse risk analysis for risk management. In their 2021 book titled “Risk: A User’s Guide”³, authors Stanley McChrysta, former US Army General and Anna Butrico neatly sum up this common pitfall with the phrase, “the greatest risk to us is us.” Stan and Anna clarify by explaining that project teams often fixate on the probability of risk rather than the nature of the vulnerability. All project team members must do everything they can to manage uncertainty within their sphere of influence. At a minimum, this should manifest as revised completion forecasts. If all is going well, monthly or periodic forecast updates should describe a narrowing range of outcomes. If project outcomes are not becoming increasingly predictable, this should trigger an escalation that prompts broader management awareness and possible intervention.
A risk-intelligent organization will employ systems and project tools that protect resilience and value agility. In the long-term, a structured and consistent approach offered by dedicated software platforms will provide your teams access to big datasets, taking the guesswork out of risk management and reducing your assumption to knowledge ratio.4 Is your project team empowered to deliver your project and business commitments using best-in-class tools? If you have not tried it already, LiquidPlanner offers a unique and effective approach to risk mitigation and predictive outcomes. The software can help teams effectively manage changing priorities, better communicate revised forecasts, and more confidently navigate uncertainty in the face of both known and emerging risks.
About the Author
With more than 20 years’ professional experience, James Arrow has played a key role in successfully delivering critical capital assets, in a variety of locations, around the world. Having had the opportunity to work with diverse teams across the globe, James is well-versed on project best practices and applies exceptional communication skills to lead multi-disciplinary teams. An effective hands-on team-player, James is also an acclaimed writer and speaker on topics concerning project risk management, data analytics, data science, including digital disruption in the engineering and construction sector. In recent years, on several occasions, James has been formally recognized by his peers for his contributions to the profession.
¹ Hillson, D. (2003, September 25). Using risk management for strategic advantage [Review of Using risk management for strategic advantage]. Https://Www.pmi.org/; Project Management Institute.
² Layton, Mark. “Risk Management Practices Cannot Be “Bolted On.”” Www.irmi.com, July 2007, www.irmi.com/articles/expert-commentary/risk-management-practices-cannot-be-bolted-on. Accessed 15 May 2022.
³ S. McChrystal and A. Butrico, Risk: A User’s Guide, New York: Portfolio, 2021.
4 R. G. McGrath and I. C. Macmillan, Discovery-Driven Growth: A Breakthrough Process to Reduce Risk and Seize Opportunity, Boston MA: Harvard Business Review Press, 2009.