Project Risk Management: A Practical Implementation Approach

(1932–2016).

Preface

Growing worldwide competition in virtually every industry has raised the bar for developers and marketers of new products and services. This has led to the goal and pursuit of doing more with less, and thus intentionally taking more risk, which leads to the need for tighter project controls to succeed as a thriving business entity. Further, recognizing that project management competencies, tools, and techniques have evolved over time to enable more reliable and effective project performance raises the need to consider what best practices projects should employ to maximize their probability of success, and gain a distinct competitive advantage in today's marketplace. This book addresses these concerns in a very practical way.

This book is established as a project risk management application supplement. The content and approach augments other tutorial publications on the subject (e.g., the Project Management Institute's A Guide to the Project Management Body of Knowledge (PMBOK® Guide) – Fifth Edition and practice standards) by addressing this topic relative to every aspect of project management, and providing insight, knowledge, and case study examples which facilitate the determination of best practices and the practical implementation of project management tools and techniques. This information is relevant to virtually any project type and any industry. It contains valuable insights and rationale, which will directly benefit practicing project managers, organizational managers, and those aspiring to become project managers. This content is also written for the executive level, to provide practical perspectives of the organizational influences that have a direct bearing on project performance, and some key considerations for improving project management performance, in general.

The classical project risk management processes relative to the establishment of a risk management plan, identifying risks, analyzing risks, developing risk responses, and controlling risks provides a necessary foundation for effective overall project management. This content is thoroughly addressed within the early chapters of this book, but that is not where the discussion ends. After over 35 years in research and development and 25 years of project management experience in different industries the author has solidified his view that risk management permeates project work. Every project management tool and technique has been established over time to reduce risk of project failure, so this must be understood if one is driven to be successful at managing project risks, and managing projects in general. Project managers and organizational leaders need to know how to determine which project management tools and techniques are best for their projects—for less-than-best practices lead to project risk. Project managers must also understand how to continually balance a project relative to all of its major constraints (i.e., project scope, schedule, budget, resources, risks, and product quality)—not just during initial planning, but throughout the project life cycle. Organizational leaders need to fully comprehend and realize that organizational assets and resource management do indeed affect project performance. They also need to know how to assign the right project managers and develop people and processes to ensure consistent, good project performance. How do project managers know whether their project team has considered all the germane project risks? What are the important questions to ask? What are the best practices to employ? The content of this book will help answer these questions.

As with many new ideas, the foundation for this book was based on work performed for several other purposes. The author studied best practices used in several industries, and worked on a model for determining those that apply for basically any type of project. He has developed and taught training materials for numerous classes in project management basics, risk management, planning/scheduling, product development processes, and cost/schedule control. He also recently developed a novel postmortem process (contained herein) to facilitate the objective evaluation of project lessons learned in a very efficient and effective manner, which readily identifies areas of necessary improvement. Beginning his career as a system engineer in an aerospace company, the author eventually became a program manager exposed to several of the most effective tools and techniques in the various topic areas noted above. He subsequently entered the consumer electronics industry and has held various executive-level positions throughout the past two decades, including: general management of a division, program and project management offices, system engineering, quality assurance, procurement, operations, and product marketing. His vast experience in different jobs, industries, and market spaces has afforded him a very unique perspective on the topic of project management. Realizing the need by managers at all levels to have a greater appreciation of the practical application of project risk management, from theory to practical implementation, the author puts forward this novel treatment of the subject, incorporating a rational, holistic perspective, which should be of great interest to all who are in pursuit of project management excellence.

This book can serve several purposes. It will be a good reference for project managers to use when planning a project and when encountering project risks and issues throughout the project life cycle. It should also aid project managers in their understanding and appreciation of the various project management tools and techniques established over time, which impact project risk. It will help organizational managers to better determine how to effectively assign project managers and to know what to look for when hiring them. It will also sensitize organizational leaders to their roles in ensuring successful project performance. It will help teachers and people training prospective project managers. It will also serve as a good training supplement for the practical application of sound risk management concepts.

This book is written and intended to be broad enough to encompass numerous industries; clearly all those organizations that conduct complex and inherently risky projects and also those organizations with less risky projects that are expected to run smoothly and effectively save on valuable financial resources and the time it takes to conclude projects successfully.

It is worth repeating that this book is not limited to only project managers and aspiring project managers; it is also of great utility for matrix organizations that conduct a multitude of projects. In those organizations, it is essential that functional managers have a good grasp of project management principles and practical applications, for best practices can vary appreciably from project to project. This book communicates that information in a way people can learn without necessarily taking a course on the subject, especially if they already have a general understanding of the subject and some actual project management experience. Much of this information will seem like common sense, but very few will be able to effectively retain all the information, which makes it a very good reference book, as well.

Practical Application of Project Risk Management

Overview

Proactive employment of project risk management concepts by project managers and their teams can make a substantial difference between being successful or unsuccessful in achieving project objectives. This is not a new notion. In fact, one of the major requirements for the Project Management Professional (PMP)® certification is successful completion of a course on project risk management because it is considered a critical Knowledge Area in A Guide to the Project Management Body of Knowledge (PMBOK® Guide) – Fifth Edition. Thus, more and more project managers are becoming armed with a good understanding of how project risk management interrelates with other project processes, and what tools and techniques are available for initial project planning and ongoing project management. This book was developed to not only provide insight into the practical implementation of the more classical risk management tools and techniques, but to expand the breadth of the subject to encompass all of the other aspects of project management that affect risk and project success.

One of the most compelling underlying principles of this discussion on risk management is the realization that many organizations have goals and objectives to continuously improve and endeavor to be increasingly more competitive in the marketplace(s) they serve. This competitive drive leads to attempts to do more with less, to outperform competitors, which typically leads to greater shareholder and stakeholder value through more compelling product offerings. Taylor Clarke (2015) articulates this notion of doing more with less as follows: Amid increasing competitive pressures, many organizations are looking to do more with less. This has led to a plethora of initiatives aimed at stretching the resources and capabilities of the business with the aim of becoming more efficient and yield greater returns (p. 1). Thus, organizations become driven to overtly take greater risks in their product development processes—risks that can lead to better financial performance if understood and managed well, but conversely, if not understood and managed well, can lead to a crisis management culture, organizational frustration, and ultimately to detrimental business/financial results.

By understanding the typical causes of unsuccessful project execution, one can formulate a methodology that ensures that all risks which are critical to a project's success are at least considered, appropriately communicated, and bought into (i.e., agreed to by all stakeholders). The practical application of sound project risk management principles can then become more effective, leading to better predictability relative to project execution and higher probability of success for all organizational endeavors.

The practical implementation of project risk management tools and techniques starts with the establishment of a sound risk management plan. This plan is developed and augmented by a risk management process that facilitates identifying, assessing, responding to, and managing risks throughout the project planning and execution processes. Several viable project-appropriate approaches are presented here, and this book focuses on the more prevalent tools and techniques used on complex, risky projects. Being aware of these tools and techniques is only half the battle—using them effectively is key to ensuring that the established project management processes will yield improved confidence in achieving project objectives. The content of this book was assembled to facilitate such practical implementation.

How do we know if we have accounted for all germane project risks? is a question that has been asked over and over by individuals and teams endeavoring to do their very best at actively managing project risks. The answer is not easy to provide. There are so many different types of projects with their own unique constraints, all of which adds to the difficulty of finding the right solution. Although it is challenging to provide all the silver bullets, there are ways to get very close—and this book addresses them. By understanding most of the typical causes of unsuccessful project execution, knowing the right kinds of questions to consider, and having access to individuals knowledgeable enough to provide objective assessments of every potential pitfall associated with a particular project, a project manager is armed with the resources necessary to develop a solid project plan. This typically takes team/organizational commitment, objectivity, discernment, and a thorough process. The contents of this book will expose you to information and processes that can enable you to achieve this goal—to develop good project plans and to make informed decisions concerning adjustments to project constraints when required necessary.

Another question is: What are the right sets of tools and processes (techniques) to employ for your specific project(s)? The right set can be referred to as the best practices—the methods or techniques that have consistently shown results superior to those achieved using other means; they are used as benchmarks (Best Practice, n. d.). Simply knowing the best practices to employ in managing your projects can provide the project team with a huge boost of confidence in its ability to successfully perform and achieve project goals and objectives. The context of project management best practices that is referred to here is not only relative to the specific risk management activities, but for essentially every project management activity undertaken by the project manager and project team—and hence, the reason that risk management is so integral to overall project management. Having an intimate understanding of this concept will put you, as a project manager, on an entirely different level. It will also significantly benefit your organization. This book provides that insight to help determine the most effective techniques to apply to your specific project(s).

A common question in the minds of those assigning project managers is, How knowledgeable and capable must the project manager be regarding every aspect of the project plan, product development process, and applicable project management tools and techniques? The answer can vary significantly from project to project, organization to organization, and industry to industry. Some useful ideas for consideration are provided—to both facilitate project staffing decisions and to help project managers understand what it takes to progress in their chosen career path.

Content

This book is comprised of a total of 16 chapters. Chapter 2 provides a big-picture perspective of what practical project risk management entails. To set the stage, several general aspects of project management (i.e., project life cycle, product life cycle, and product development cycle) are reviewed to not only point out how integral risk management is to each, but to reveal some of the more important project risk management principles to be aware of. Chapter 3 lays some foundation by articulating risk-related definitions, categories, and groupings. Chapters 4 through 15 will be explained in the following section. The final chapter provides some case study examples, which should provide more insight into the concepts discussed throughout this book. Additional detailed information is provided in appendices at the end of the book; they expand upon the content where appropriate and are there for those inclined to delve into further layers of detail.

Portfolio Project Risk Management—A Holistic Perspective

Project risk management not only permeates the project management process, but when considered holistically becomes an organizational asset that feeds off and affects the entire project portfolio—past, present and future. Figure 1.1 provides a graphic depiction of the build-up of project risk management influences. Arguably the most impactful and foundational aspect of project risk management is the process of identifying, analyzing, responding to, managing and controlling, and organizing/communicating (via a risk management plan) project risks—referred to as project risk management basics in Figure 1.1. Chapters 4 through 11 cover these topics in detail. The next two layers, project management tools and techniques (Chapter 12) and project manager competencies (Chapter 13), expand on the subject from a standpoint of how project management best practices and capabilities affect project risk. Stakeholder and organizational influences (Chapter 14) develop additional risk management considerations and capabilities—at both the individual project level and beyond (i.e., at the program and portfolio levels, as well). Finally, the lessons-learned (or postmortem) processes, if applied proactively, can add another layer of organizational excellence (to mitigate risks on future projects, and enable continuous improvement in project execution performance) at the portfolio level (Chapter 15). This is particularly relevant to organizations engaged in repetitive development activity associated with similar or derivative products and/or services.

When taken in its entirety, portfolio project risk management can be a powerful concept for ensuring project success and organizational/business competitiveness. Project management offices exist in many organizations to standardize practices and systemically improve project management performance. To help achieve this objective, the elements of project and portfolio risk management depicted in Figure 1.1 should be given serious consideration.

Practical Project Risk Management Concerns

The following is a list of some key relevant questions addressed by this material:

How do you develop a project plan that effectively takes risks into account?

What is the significance of rebalancing a project plan, and how is it done?

How do you know whether or not you have successfully identified all the project risks that are germane to your project's success?

How do project requirements, stakeholder expectations, and resource capabilities affect project risk—and what can be done to effectively deal with these risks?

How do you determine the best practices to apply to your particular project?

What is the right product development process (or product-oriented process, or new product introduction [NPI] process) to follow, and how is it determined?

What are project postmortems? How are they conducted? How can they help?

What capabilities should the project manager, team members, and performing organization(s) possess to plan and execute their project(s) successfully?

Risk Management—Integral to Project Management

Once a project is initiated, the first order of business is usually to establish a core team consisting of a project manager and one or more designated team leads. The team's first task is typically the development of a sound (i.e., executable) project plan. After the project is kicked off, whether or not the plan is indeed executable, adjustments are likely to be required over time—a more frequent occurrence in complex, inherently risky projects. In response, project managers must effectively deal with issues that arise by exploring and implementing remedial action (i.e., changes to the plan). These issues usually originate from a priori risks—thus, the need to proactively manage risks to keep issues at an absolute minimum and improve the likelihood of successfully meeting project goals and objectives.

In this chapter, project risk management is introduced as it relates to overall project management. General project management concepts and processes are reviewed and corresponding key elements of project risk management are highlighted.

Project Risk Management Fundamentals

Projects are defined by a set of interrelated tasks (or activities) bound by a set of overarching constraints. Figure 2.1 depicts a simple way of graphically portraying a project. Although the number of overarching constraints has been expanded upon (up to six) to better embrace the concept of developing balanced project plans, three of them represent the classical triple constraint—project schedule, cost, and scope. Basically, a project is established to produce an end result (product, or service, or combination thereof) within a prescribed time frame for a predetermined amount of money. A plan is established, which: (1) defines the deliverables (i.e., product quality and technical performance requirements); (2) establishes the statement of work (SOW), or scope, to perform for meeting the deliverable objectives; (3) establishes the corresponding baseline schedule to adhere to; (4) establishes the corresponding baseline budget to stay within; (5) assumes a level of resource capability and capacity at prescribed times throughout the project duration; and (6) establishes the level of project risk to contend with.

These six constraints, taken as a collective set of conditions, comprise a balanced project plan. In Figure 2.1, the project plan is depicted as a straight line between the two opposite corners of the cube created by the three dimensions of the triple constraint—where the tail and arrow represent the start and finish of the project, respectively. The plan will not likely be linear as shown, but think of this as being a normalized plan. Even if all project objectives are met, it is highly unlikely that the actual execution will follow that path exactly. Issues will likely arise and course corrections (i.e., responses) will have to be developed and acted upon. This usually means that the team must make trade-off decisions between the super-set of project constraints (not just scope, schedule, and cost, but also quality/technical, resources, and risks). The accepted rule of thumb is that a change in one of these constraints will affect at least one of the others.

Figure 2.2 depicts the ongoing general process of managing and controlling a project. The team executes the planned tasks, monitors progress (via some measureable data—i.e., metrics), re-evaluates the plan as a result of issues that arise, and replans to best achieve project objectives given stakeholder priorities. Keeping issues to a minimum will naturally lessen the disruption within the project and performing organizations. This becomes increasingly difficult for projects that are more complex. Active risk management is, consequentially, a good practice to employ, regardless of project complexity. Furthermore, the right practices (or best practices) to employ for planning, managing, and controlling projects may vary considerably between different project types. Knowing the best practices associated with project execution and employing them effectively will typically improve the probability of project success (i.e., reduce project execution risk).

General Process Cycles and Related Project Risks

When considering projects, in general, there are different process cycles one should understand: (1) the project life cycle, (2) the product life cycle, and (3) the product development (or product-oriented) cycle. Project risk is an inherent element of all three, and thus, should be understood by project managers and their organizations because some of the subtle ramifications may not be that well understood, and may be confused. Each cycle is briefly addressed in this introductory chapter.

Project Life Cycle Structure

All projects have one thing in common—a project life cycle structure. Thus, projects, whether stand-alone or a phase within a multiphase program, have some common features. Figure 2.3 depicts this process on a generic timeline, as a function of the relative level of resources expended over that time. Projects are initiated, organized, carried out, and then closed. The amount of time and effort expended in the various sequential steps may vary greatly between projects, but all have these steps. Typically, a project is established and initiated by a project sponsor (person or organization). As a response to identified project objectives (project charter), a plan is established to organize the work. There is a time (usually identified as a key project milestone) when project deliverables are accepted (or not). There is also a time when project activities cease. Although these steps are sequential, there could be several iterations of certain steps that disrupt the general flow—for example, replanning due to issues typically halts all or part of the project work until a new plan is established.

Within the project life cycle, the potential impacts associated with risk items will have varying degrees of significance or severity, depending on when in the project timeline they are expected to be realized as a potential issue (i.e., the risk event). Figure 2.4 provides a graphic to help communicate this important message—that the degree of risk and uncertainty throughout a project has a direct relationship to the magnitude of potential impact for accommodating resultant issues and changes to the project plan and objectives. In other words, project risk is typically highest at the start of a project, but as the project progresses and as more information becomes available, the level of project risk should decrease. Conversely, the cost of making a change is lowest at the start of a project, and changes become more and more expensive to implement as the end of the project approaches. This suggests that to lessen the impact of individual risks to overall project objectives, actions to address those risks should be implemented as early in the project life cycle as possible. To do so effectively, project teams should engage in proactive project risk management, as espoused throughout this book.

A Guide to the Project Management Body of Knowledge (PMBOK® Guide) – Fifth Edition aptly identifies three distinct project life cycle types—each of which results in inherently different project risk considerations. These life cycle types are recapped below:

Predictive: used when project and product requirements are well understood, and when a deterministic plan to meet a particular statement of work is able to be established at the start of the project. Predictive projects may use rolling wave planning, in which more detail is planned as time progresses and more information is available (PMI, 2013b, pp. 44–45), for example, classical aerospace industry development projects.

Iterative and Incremental: used to manage projects with changing objectives and scope—in which the partial deliveries of a product are helpful. This results in development of products through a series of repeated cycles, while increments successively add to the functionality and maturity of the product (PMI, 2013b, pp. 45–46), for example, consumer electronics.

Adaptive: used when requirements and scope are difficult to define in advance. This is reflective of projects expecting high levels of change and ongoing stakeholder involvement (PMI, 2013b, p. 46), for example, IT infrastructure tools.

Product Life Cycle

The product life cycle is sometimes confused with the project life cycle because they look similar. The sale of products (note: products and services are both implied when the word product is used throughout this book in this type of generic context) over time tends to follow a certain pattern—as depicted in Figure 2.5. They are launched into the market, and initially purchased by early adopters. When accepted into the market, they typically experience a relatively rapid rate of early growth. Product maturity is representative of fairly stable and predictable sales. Eventually, for most products, there is a time when sales fall off and the product is eventually discontinued. Some organizations implement a formal end of life (EOL) process to facilitate the smooth transition of products in this phase. Product improvement projects (e.g., to improve product yields, quality, reliability, costs, technical performance, etc.) are typically performed throughout this cycle. The relative risk associated with these projects tends to decrease as time progresses—as do the project management requirements. Thus, the product life cycle management plan can serve as a good opportunity to develop project managers—assigning them to progressively more complex or risky projects over time. Usually this involves the application of