Four reasons to use project risk management

Banana peel Companies are now more dependent on their ability to complete projects successfully than ever before, to the extent that project management is a strategic tool for company survival.

Project managers are under ever greater pressure to deliver. Also under pressure are their bosses, typically the IT directors, finance directors or (in some cases) the managing director. They all know that projects that deliver late and over budget affect the whole company, not just the IT department.

PriceWaterhouseCoopers found that just 2.5 per cent of companies 'had 100 per cent of their projects delivered on time, within budget, to scope and delivering the right business benefits'. That suggests a failure to deliver on a wide scale.

But successful projects are possible, provided that you adopt the right approach. I believe part of that approach is to use project risk management more than you do now. Here are the four key reasons why your organisation's ability to survive is linked to its ability to manage project risk. I think you'll agree that the business case for project risk management is overwhelming.

1.  Better risk management planning means fewer delays

Although your plan should contain all of the activities that you need to perform in order to achieve your goal, the reality is that all too often additional project tasks are only discovered once the project is well under way. 

But is it only possible to understand the real scope of work once a project is in progress? In most cases the answer is no. In fact, for many of the projects that go so horribly wrong the potential problems were always there, waiting to be discovered. Yet in project after project the amount of time and effort devoted to risk analysis is very small. In many cases it is little more than a list of potential risks.

You can create a better project plan if you complete a thorough risk analysis at the outset of your project. It doesn't have to take long and it won't cost much. When you're finished you can update your original plan to include the risk mitigation activities that you need in order to deliver.

By anticipating these hidden problems you're on the right path to success instead of failure. You will also have an increased awareness of your project’s risks. Monitoring against risks is so much easier when you know what you should be looking out for. 

2.  Improved contingency planning means cost overruns are reduced or avoided

Once you have updated your plan to include your risk mitigation activities, what then? What happens then is that you are still in danger. Your new plan is no guarantee that things won't go wrong. 

If you don't have an alternative approach ready to go when you need it then you'll have to invent one. Unfortunately this will be right at the moment when you least have time to do so. Progress stalls while you re-plan, your project goes into delay and your costs begin to rise. 

Worse still, if you need additional resources you may be stuck for a very long time arguing for them. Worst of all, you'll put tremendous pressure on the rest of the organisation, which may be forced to make very difficult choices about whether to make cuts elsewhere so that your project may continue.

A better approach is to develop a series of contingency plans. By creating these in advance, based on the key risks that you identified at the start of your project, you'll have three important advantages. First, by costing your contingencies you'll know what your contingency budget needs to be and have the arguments to secure this in advance.

Second, you'll have a better idea of the signs to look for that tell you that your original plan isn't working, giving you time to put your contingency plans into action. Third, if you do need to change tactics both you and your team will already know what to do.  

The end result is that you'll avoid going into delay while you come up with come up with a  Plan B and you'll have the funds available. If it turns out that you don't need to use your contingency plans, you don't have to. My view is that it's better for you to have a plan that you don't need than for you to need a plan that you don't have.

3.  On time delivery without cost overruns means a faster and improved return on investment

What happens when projects come in late, over budget or fail entirely? Well the simple answer is this a project's financial return can be slashed when it delivers late, over budget, or a combination of both, while a project that is abandoned before completion costs the company not just the money invested in the project, but also the benefits now lost to the organisation. 

These may include lost sales, higher than planned running costs, missed market opportunities, a competitive advantage or a leading position in a current market.
What role can risk management play here? In this case risk management provides the means by which companies can ensure a return on investment.

Avoiding late delivery means that projects start repaying their investment earlier. Avoiding cost overruns means that profits margins are preserved. Avoiding de-scoping means the full business benefits are achieved as expected.

Even better, you can return your unused contingency funds so that they can be used elsewhere. This may make the difference to the survival of other projects, which in turn means additional returns begin to flow.

Reduced delays. Lower costs. Improved return on investment. Three great reasons for using risk management. But there's one more. 

4.  You are better able to seize opportunities by taking calculated risks

A calculated risk is one where the rewards for success far outweigh the consequences of failure. By raising your ability to manage risks you put yourself in a good position to take advantage of these opportunities.

The improved return on investment you get from delivering on time, plus the savings you make by not having to use your contingency budget, means you generate wealth that can be re-invested. Once you become better at managing risk you'll find yourself seeing investment opportunities where previously you saw only problems.

Bryan Barrow MBCS CITP

About the author

Bryan Barrow started his career as a telecommunications apprentice, but moved from telecommunications to customer services because he had the ability to work well both with people and technology. He moved to computing in the late 80s and has continued to work on projects ever since.

December 2007