The document discusses risk management in project management. It argues that while humans cannot predict the future, project managers must commit to baselines to keep stakeholders happy. Risk management involves identifying risks strategically during planning and tactically during execution. Strategic risk management addresses marketplace forces using tools like SWOT analyses, while tactical risk management makes risks actionable by determining root causes, impacts, and mitigation strategies. The document provides templates for categorizing risks and opportunities to prioritize the top threats and enablers to the project baseline. Overall it presents a formal approach to risk management as a tool for project success.

1. RISK MANAGEMENT
LIP SERVICE OR A PRACTICAL TOOL FOR
PROJECT SUCCESS
BY DR JOHN HOGAN PMP

2. PROJECT MANAGEMENT IS COMPOSED OF PLANNING
AND EXECUTION

3. BUSINESS MANAGEMENT IS COMPOSED OF PLANNING
-A PROCESS UNDERTAKEN TO PREDICT THE FUTURE
AND EXECUTION

4. BUSINESS MANAGEMENT IS COMPOSED OF PLANNING
-A PROCESS UNDERTAKEN TO PREDICT THE FUTURE
AND EXECUTION
-COMPLETING TASKS THAT WERE DEFINED IN THE PAST

5. DOES ANYONE SEE A PROBLEM
HERE?

6. HUMANS CANNOT
PREDICT THE FUTURE

7. WE HAVE THE PLANNING FALLACY
(COINED BY NOBEL PRIZE WINNER DANIEL KAHNEMAN IN HIS 2011 BEST SELLER
THINKING FAST AND SLOW)
PROJECT TEAMS ARE EMOTIONALLY AND POLITICALLY DRAWN TO
PORTRAYING THE BEST CASE SCENARIO FOR THEIR COST AND SCHEDULE
PERFORMANCE AS THE MOST LIKELY (THE INSIDE VIEW)
WHILE
IGNORING THE PERFORMANCE DATA FROM ALL OTHER PROJECTS IN THEIR
REFERENCE CLASS (THE OUTSIDE VIEW)

8. WE HAVE COMPLEXITY
(SEE A LEADER’S FRAMEWORK FOR DECISION MAKING BY DAVID J. SNOWDEN
AND MARY E. BOONE IN THE 2007 HARVARD BUSINESS REVIEW)
PROJECT MANAGEMENT BY ITS DEFINITION RESULTS IN UNIQUE PRODUCTS OR
SERVICES-PRODUCTS OR SERVICES THAT PREVIOUSLY DID NOT EXIST
IF THESE PRODUCTS OR SERVICES INTERACT WITH OTHER COMPONENTS, ALREADY
DEVELOPED OR IN DEVELOPMENT, THE PROACTIVE PROJECT MANAGER MUST BE
AWARE OF THESE INTERACTIONS
SELF-ORGANIZING BEHAVIORS CAN EMERGE THAT HAVE AN UNPREDICTABLE
IMPACT ON A PROJECT’S COST, SCHEDULE, OR FUNCTIONALITY

9. WE HAVE LIMITED KNOWLEDGE
(SEE THE BLACK SWAN BY NASSIM TALEB FOR A LUCID ANALYSIS OF THE IMPACT OF
RARE EVENTS)
A STATISTICALLY MINDED TURKEY MAY THINK IT HAS KNOWLEDGE OF ITS EXPECTED
DAILY GRAIN RATION BASED OF A YEAR OF DATA. IT KNOWS THE MEAN AND THE
STANDARD DEVIATION
BUT IT DOSEN’T KNOW NEXT WEEK IS THANKSGIVING

10. IN SHORT WE HAVE UNCERTAINTY
“UNCERTAINTY IS TOMORROW’S ONLY TRUTH”
LORENZO OF FLORENCE, CIRCA 1500

11. ALTHOUGH HUMANS CANNOT
PREDICT THE FUTURE

12. ALTHOUGH HUMANS CANNOT
PREDICT THE FUTURE
WE STILL HAVE TO KEEP OUR
STAKEHOLDERS HAPPY

13. ALTHOUGH HUMANS CANNOT
PREDICT THE FUTURE
WE STILL HAVE TO KEEP OUR
STAKEHOLDERS HAPPY
BY COMMITTING TO BASELINES

14. IN THE PLANNING PHASE WE JUGGLE THE BALLS OF
FUNCTIONALITY COST AND SCHEDULE UNTIL WE
HAVE AN EXECUTABLE BASELINE
-at least we think it is
BASELINE

15. HOWEVER THIS BASELINE IS NO MORE
THAN THE CONCENSUS OPINION
(AMOUNG OURSELVES AND OUR
STAKEHOLDERS) OF WHAT THE FUTURE
WILL BE

16. THE STAKEHOLDERS WATCH US AND OFFER
THEIR OPINION ON OUR ABILITY TO BUILD
THIS BASELINE
Nice job
Very thorough
BASELINE
Nice suit
Can I leave now

17. THE FUTURE COMES SOONER THAN WE THINK AND IN
THE EXECUTION PHASE JUGGLING BALLS TURNS INTO
JUGGLING CHAINSAWS AND THE TERRA FIRMA OF THE
PLAN YEILDS TO UNCERTAINTY
-you’re a little more interesting to watch now
SCHEDULE
SCOPE
COST

18. AND NOW THE STAKEHOLDERS
BECOME MORE ANIMATED
SCHEDULE
SCOPE
COST
Who decided that
What were you thinking
That’s gonna cost us
Where’s the risk management
been on this project

19. RISK MANAGEMENT IS A FORMAL
ATTEMPT AT PROTECTING OUR
BASELINES FROM THE PERILS OF
UNCERTAINTY

20. RISK MANAGEMENT HAS TWO FORMS
STRATEGIC
APPLIED DURING THE PLANNING PROCESS TO
ENSURE THE BASELINE HAS A BALANCE OF
RISKS AND OPPORTUNITIES ALIGNED WITH THE
ORGANIZATIONAL MISSION
TACTICAL
APPLIED DURING PROJECT EXECUTION TO
ENSURE THE BASELINED FUNCTIONALITY IS
DELIVERED ON TIME AND WITHIN BUDGET

21. THE UNDERLYING PROCESS FOR QUANTIFYING
RISKS OR OPPORTUNITIES IS BASED ON THE
CONCEPT OF EXPECTED VALUE (DEVELOPED BY
MEMBERS OF THE BERNOULLI FAMILY-CIRCA
1700s)
EXPECTED VALUE = IMPACT times PROBABILITY

22. STRATEGIC RISK
APPLIED IN THE PLANNING PHASE
MUST ADDRESS COMPETITIVE MARKET PLACE FORCES
DRIVEN BY THE ORGANIZATIONAL CULTURE
RISK ADVERSE OR RISK TAKING
SUPPORTING TOOLS RANGE FROM
SWOT ANALYSIS TO DECISION TREES TO PROPRIETARY
ANALYTIC ALGORITHMS
BUT CULTURE TRUMPS TOOLS

23. NO MATTER WHAT THE NATURE OF OUR
ORGANIZATION’S RISK CULTURE……
IF WE LEAVE THE STRATEGIC PLANNING
PHASE WITH A PROJECT……….
WE LEAVE WITH A BASELINE

24. RISK
BASELINE
SOME RISKS ARE RETIRED IN
BASELINE DECISIONS
SOME ARE ACCEPTED IN BASELINE
DECISIONS BECAUSE OF THE
OPPORTUNITIES THEY ALLOW

25. Risk Management Occurs During Planning
(Strategic) and Execution (Tactical)
RISK
RISK
SOME
AREN’T
BASELINE
WHILE SOME RISKS ARE
RETIRED IN BASELINE
DECISIONS
A RISK TEMPLATE IS USED AS A
MANAGEMENT TOOL DURING
PROJECT EXECUTION

26. BEFORE WE ADDRESS TACTICAL RISK MITIGATION
LET’S ADDRESS A MAJOR MISUNDERSTANDING
CONFUSING OUTCOMES WITH RISKS
IF A PROJECT MANAGER RELATES THE FOLLOWING
“I HAVE A MAJOR RISK. I THINK THE SOFTWARE
DEVELOPMENT MIGHT BE TWO MONTHS LATE AND
20% OVERRUN”
WHAT SHOULD THE BOSS SAY?

27. NO S!@#

28. NO S!@#
SOFTWARE IS ALWAYS LATE AND ITS ALWAYS OVERRUN
TELL ME SOMETHING I DON’T KNOW

29. WE NEED TO DETERMINE THE UNDERLYING ROOT
CAUSE OF THE DELAY TO HAVE ANY CHANCE OF
DEVELOPING AN EFFECTIVE RESPONSE
ONE EFFECTIVE APPROACH RELIES ON APPLYING 3
POINT ESTIMATING WHEN BUILDING THE BASELINE
FOR KEY COST DRIVERS AND LONG
ACTIVITIES ON THE CRITICAL PATH WE
ASK THE TEAM MEMBERS PROVIDING
THE ESTIMATES FOR THREE NUMBERS
BEST CASE
MOST LIKELY
WORST CASE

30. WHEN APPLIED TO ALL LINE ITEMS IN THE
SCHEDULE THE 3 POINT SYSTEM FORMS
THE BASIS OF THE PERT ESTIMATING
APPROACH
PERT HAS BEEN AROUND SINCE THE FIRST
NUCLEAR SUBMARINE
WE’RE NOT GOING TO CONCERN
OURSELVES WITH PERT HERE. WE’RE STILL
GETTING A HANDLE ON TACTICAL RISK

31. TACTICAL RISK
THE SAVVY RISK MANAGER ASKS THOSE WHO BUILT THE
ESTIMATE
“WHAT WOULD HAVE TO TRANSPIRE TO MAKE THE WORST
CASE OCCUR”
“WHAT WOULD HAVE TO TRANSPIRE TO MAKE THE BEST
CASE OCCUR”
WE NOW HAVE SPECIFIC EVENTS FOR WHICH WE CAN
ESTIMATE IMPACT AND PROBABILITY

32. Results of Uncertainty
POSSIBLE OUTCOMES
UNCERTAINTY
BEST CASE
WORST CASE
MOST LIKELY
BETTER
THAN
BASELINED
WORSE
THAN
BASELINED
.
.
HOW DO WE MAKE ACTIONABLE
OPPORTUNITY
(BEST CASE)
RISK
(WORST CASE)

33. Making Risks Actionable
• What undesirable events or conditions from the
cloud of uncertainty are the root cause of risks to
the baseline
• What is the negative impact if these undesirable
events or conditions come to pass
• What is the probability of these events or
conditions coming to pass
• What cost effective mitigation can be
implemented to reduce the impact or reduce the
probability of these risks

34. Making Opportunities Actionable
• What desirable events or conditions from the
cloud of uncertainty are the enablers of
opportunities to the baseline
• What is the positive impact if these desirable
events or conditions come to pass
• What is the probability of these events or
conditions coming to pass
• What cost effective enhancements can be
implemented to increase the impact or increase
the probability of these opportunities

35. RISK/OPPORTUNITY TAXONOMY
RISK
OPPORTUNITY
Undesirable events conditions
Desirable events conditions
Root Cause
Enablers
Negative Impact
Positive Impact
Probability
Probability
Cost Effective Actions
Cost Effective Actions
Mitigate Risk
Enhance Opportunities
Reduce Impact
Increase Impact
Reduce Probability
Increase Probability

36. THE TACTICAL RISK TEMPLATE
RISK ROOT BASELINE
CAUSE ELEMENT
AFFECTED
IMPACT BY $ OR PROBABILITY EXPECTED
SCALE
VALUE
XXX
YYY
ZZZ
THE SAVVY PROJECY MANAGER PRIORTIZES THE RISK EVENTS BY
EXPECTED VALUE AND DEVOTES MANAGEMENT TIME TO MITIGATING
THE ROOT CAUSES OF THE TOP THREE TO FIVE RISKS TO THE BASELINE

37. Risk Words to Live By
PREVENT
IMPACT
INSURE
ACCEPT
MITIGATE
PROBABILITY

38. THE TACTICAL OPPORTUNITY TEMPLATE
OPPORTUNITY ROOT BASELINE
CAUSE ELEMENT
AFFECTED
IMPACT BY $ OR PROBABILITY
SCALE
EXPECTED
VALUE
XXX
YYY
ZZZ
THE SAVVY PROJECY MANAGER PRIORTIZES THE OPPORTUNITIES BY
EXPECTED VALUE AND DEVOTES MANAGEMENT TIME TO ENABLING
THE TOP THREE TO FIVE OPPORTUNITIES TO THE BASELINE

39. Opportunity Words to Live By
EXPLOIT
IMPACT
TEAM
IGNORE
HARVEST
PROBABILITY

40. THE TYPICAL APPROACH TO RISK MANAGEMENT IN
TOO MANY ORGANIZATIONS IS AS FOLLOWS:
MUSHY RISK DESCRIPTIONS LISTED IN A
FORMALIZED TEMPLATE DUSTED OFF WHEN THE
PROGRAM GETS IN TROUBLE
BY MUSHY I MEAN CONFUSING STRATEGIC WITH
TACTICAL AND OUTCOMES WITH RISKS
IN THE PREVIOUS CHARTS WE HAVE DESCRIBED A
UNAMBIGUOUS WAY TO THINK ABOUT RISK
MANAGEMENT AND AN EFFECTIVE WAY TO
IMPLEMENT IT

41. MY CURRENT AVOCATION IS TEACHING PROJECT MANAGEMENT
AND FACILITATING DISCUSSIONS ABOUT ITS APPLICATION. I’D BE
INTERESTED IN YOUR IDEAS FOR PROTECTING YOUR PROJECT FROM
UNCERTAINTY. PLEASE CONTACT ME ON LINKEDIN OR AT THE EMAIL
BELOW
Dr John Hogan
jhogan1278@gmail.com