Guest Post: Alan Shefveland Addresses the Question "At What Risk?"

 

News sources everywhere are streaming reports on the state of today’s economy. There is plenty of speculation, conversation and hyperbolae on the need to invigorate the economy with investment. Businesses and government organizations are being pressured to spend more to create jobs and boost the economy. 

But the fundamental question to ask is “At what risk?”

I get this question all the time. Project investments are being made continually. Maybe not at the pace we would like to see, but it’s happening and the state of project execution remains high within organizations.

A colleague of mine and I were recently discussing whether there is a void or opportunity to introduce new thinking in addressing the "at what risk?" question. Let's examine.

First, let's examine the statement itself.  What does “At what risk?” really mean? We can look at it in multiple dimensions. 

Project execution is a common place where we look at risk and risk management, where risk is anything that could potentially adversely affect the schedule, cost, quality or scope of a project. Basically, how does risk impact your project objectives? PMBOK outlines many processes and techniques for managing risk such as the ‘Probability and Impact Matrix for Qualitative Risk Analysis’ and quantitative risk analysis techniques such as ‘Sensitivity Analysis and Decision Tree Analysis’.

Another perspective to view risk and risk management is from the finance angle. We can look at how cost benefit analysis (CBA) can present a financial perspective of risk and we get that from ROI, NPV, etc. But these dimensions are only at the perspective of the project and the projection of potential value. 

There are other dimensions of risk we can discuss, but those have specific vertical applications, like the risk of entering a market or the risk of applying a particular technology.  

These all are very valid methods and processes, but can we answer our earlier question "At what risk?"?  I think so and we can simply address this by asking a simple question: "Are we working on the right things?"

Drawing on portfolio management techniques helps identify "At what risk." But, you may say that risk is already defined as a dimension of portfolio management, and you would be right. Organizations have struggled with implementing portfolio risk models and maintaining them.  

I prefer something simpler. Can I answer our question early in the project lifecycle without spending a lot of energy? Yes. Simply put: alignment , through the identification of what is important at the portfolio level and defining the alignment dimension of your portfolio solves our problem.  Why would we ever want to spend any energy at all on a project proposal if it doesn’t fit within the performance objectives and investment goals of the portfolio?   

From my perspective, answering the “At what risk” question can be a simple top-down exercise that can deliver great value to the organization. But the first question we should always answer is, “Does it fit?”  Then we can focus on evaluating and managing risk in the financial and project execution domains.