Guiding Principles 7: Risk management

Enable informed tradeoffs between project and portfolio risks and potential rewards.

Risk management: Enable informed tradeoffs between project and portfolio risks and potential rewards.

It’s right to couple risk and reward. Once goes with the other. But let’s not get led astray by the financial market’s conceptualisation of risk-reward. Across an investment portfolio this works, but the project risk environment is not like an investment portfolio. You can’t sell stock in part of the project and buy a bit of another project to balance the risk being faced. That would just under-resource the first project and head it to failure.

Risks in a project are at the heart of project management. This extends from risks in the project environment (what we normally call risks) to risks created by the project’s organisation. K has a useful post on internal risks that teases out this concept.

Managing risk is not done by dreaming up a list of risk around the table, ‘weighting’ them  -- usually without statistical reference -- and placing them in a matrix. That’s not risk management, that’s a ceremony; but organisations do love their ceremonies, thinking that they achieve something over here in the real world.

The management of risk has to show up on the schedule and budget, and be aligned with the dependencies of WBS elements and have calibrated probabilities attached. This helps structure the project to avoid risk, but also to deal with it when it occurs, even if it is by insurance; and insurance is the last refuge of the scoundrel project director in many contexts.