Managing project risks

How do you manage risk in your organisation? The obvious perils of fire, flood and other threats to business continuity may be addressed by insurance and service level agreements, but some risks are harder to indemnify.

The news about the next generation of high-definition DVD brought the topic into sharp focus for me. Blu-ray backed by Sony looks like winning the technology battle and Toshiba, the main competitor, may now cut its losses.

How does a company manage this kind of high-tech gamble? For both protagonists it must have been a highly calculated risk, which leads into a more general point, risk related to project management.

Every private or public sector organisation runs and plans projects or programmes. Stories about failure or cancellation are rife in the press: over-ambitious government IT initiatives, or a product or service under threat in the private sector.

Project or programme management is not necessarily the task of the financial director or CFO. A suitably qualified and experienced specialist should be appointed to do that. But the CFO needs to know what is going on in relation to milestones, expenditure and completion. An accurate, reliable and timely reporting process also is required.

To reduce risk in this area, here’s my advice for working with project or programme managers. The latter is invariably faced with multiple projects, many resources and often hundreds of activities. This makes it vital to focus on key factors: the make or break ones that will affect desired results, and where most value can be added or gained.

For the programme manager in particular, fully understanding and getting involved in every activity is unrealistic and if attempted, critical issues may be missed. The challenge is to identify when to drill down into ‘at risk’ areas that need sorting out. Afterwards, the manager needs to quickly return to a strategic view.

This is like a general directing a battle, a strategist who would not try and intervene in every area, otherwise chaos and defeat would doubtless occur. Similarly, a programme manager needs to marshall resources to deliver desired results. Like the financial director the manager needs to take the high ground and only intervene when necessary. But how can a strategic position be maintained? In my experience there are best practice ways to do this.

First, ensure that each project manager in the programme fully understands the strategic outcome expected. Many project managers think overall success means delivering their objectives to agreed time, quality and cost criteria. But some projects need to achieve much more than that.

In major change programmes, for example, such as moving a corporate headquarters from one location to another, projects may contribute to dramatically streamlining working processes as well. The outcome is not just a physical relocation, it’s a cultural transformation. Project managers need to see that bigger picture to realise the full value of the investment. Continually check throughout the programme lifecycle and its projects that the real outcomes are likely to be delivered. If an issue is identified, appropriate and timely corrective action can be taken.

Second, create a climate of support and remove any presence of fear. Countless times I have run programme health checks that resulted in a critical diagnosis or a ‘red’ delivery status. Yet the programme manager cheerfully told his sponsor that the programme was showing a fit and healthy ‘green’ light.

This can happen because the programme manager fears appearing incompetent, or being judged too optimistic. Often it is because ‘we can’t tell the sponsor it’s red’. This ‘emperor’s new clothes’ denial of never reporting red status (until a problem that could have been rescued erupts into a major crisis) often pervades the whole programme. It may result in issues that will suppress the desired outcomes. With this mistaken approach there comes a point when corrective action is impossible.

Third, highlight and track key programme milestones, risks and issues. For a programme manager to know what risk is going to threaten the delivery of desired outcomes, he or she will need help from the project managers. These individuals will know which project milestones are crucial. If these markers slip there will be a wide-ranging impact on the whole programme. There is no algorithmic way of doing this, it is a matter of judgement.

In programmes I have run, we have used suitable, well-proven and systematic methods and processes. This approach entails jointly agreeing with project managers the critical milestones that need to be promoted or escalated to a programme level.

Based on the advice here, your company’s projects and programmes should not become a battlefield. Instead they will be well planned, structured and most importantly, you will take the general’s strategic view and only dive down into the battle if absolutely necessary. However, if you as financial director constantly get involved in hand-to-hand fighting, it may be you who is the first casualty.

David Walton is managing director of project management experts Bestoutcome. He can be contacted at 01753 893511 or email david.walton@bestoutcome.com