Quantifying the benefits of risk management

 

I had written in an earlier article about using the analogy of insurance as a means of convincing senior stakeholders of the merits of project risk management, and I believe that most people academically recognize the value of the knowledge area.  However, it is likely that at some point in your project management career, you might be challenged to provide more tangible evidence of its benefits.

Risk management activities consume resources that a sponsor or stakeholder could argue would be better invested in delivering a project’s scope.  Similarly, team members might question the benefits of participating in the periodic refreshing of the risk register or their involvement in risk response activities.

When dealing with risk management practices, it can be difficult to provide tangible evidence of their value as in many respects they are a hygiene factor – we expect our projects to have predictability relative to committed baselines, and so effort spent in meeting expectations will often be seen as business as usual as opposed to something to be recognized and encouraged.

Here are a few methods of demonstrating tangible benefits to help reinforce project risk management perceived value with the decision makers.

1. Include opportunities in the scope of your project risk management activities.  While threat reduction focuses on meeting project expectations, exploiting opportunities could result in an increase in realized project benefits.

2. Use risk register & issue log data to increase institutional knowledge.  While there is often a rush on the part of resource managers to move project managers and team members to their next project, ensure there is sufficient time in your project closeout phase to analyze those issues that had not been identified as risks and incorporate the ones that have a likelihood of recurring into your knowledge bases.  Of course, knowledge that is stored but not used is wasted, but overtime it should be possible to show a reduction in the number of “been there, done that” issues.

3. Measure the overall effort spent on issue management (aka firefighting) activities when compared with overall effort spent on risk management.  Over time, if risk response plans are appropriately executed, you should see a reduction in firefighting effort with roughly the same level of effort being spent on risk management.  Not only will this reflect more in scope work productivity on the part of team members, but its a great way to ensure that your risk management practices are not gold-plated.

With project resource constraints being unlikely to ease soon, project management practices will continue to be scrutinized – through opportunity management and effort measurement, you can reduce the odds of the project risk management baby being thrown out with the unnecessary process bath water.

(Note: this article was originally written and published by me in September 2011 on my personal blog, kbondale.wordpress.com)