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Risk Management and the COVID-19 Crisis

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Categories: PMO, Risk, The Project Economy


By Mario Trentim

 

As I am writing this article, the COVID-19 crisis is reaching a global scale, impacting projects and portfolios at different levels. Unfortunately, there’s a lot of noise and misinformation out there—people panicking and organizations reacting without deliberate rational thinking. Here are my thoughts from a project risk management perspective:

 

Should Project Risk Management Take the Pandemic into Consideration?

Considering we’ve endured pandemics before, this is, in theory, a known risk. But you likely did not include it in your project risk register, as it is very unlikely. In this case, the risk is unknown to you, because you and your team didn’t identify this risk.

Whether you agree or not, I believe that no one in the world was able to accurately assess the impact of COVID-19 before it happened—and there is still uncertainty about its impact moving forward. Consequently, in my opinion, this shouldn’t be part of project risk management. So what can we do?

 

Portfolio Risk Management

I’ve always maintained that risk management at the portfolio level should take into consideration events with a potential impact on the portfolio’s overall results. For example, if only one project depends heavily on vendor XYZ, then there is a risk to that project. However, if 80 percent of the projects in your portfolio depends heavily on vendor XYZ, this is a risk to the portfolio—and the threat should be treated as such.

We can add up management reserves at the portfolio level to rescue troubled projects. This is more effective than adding multiple reserves to individual projects, which makes them less attractive to the organization and to potential clients.

Contingencies, reserves and risk responses need to be evaluated according to effectiveness, cost, and benefit. In other words, it does not make sense to pay more for the risk response than the amount of risk exposure. Too much padding will destroy a competitive advantage.

 

The PMO’s Role in Risk Management

Now that we’ve differentiated project risk management from portfolio risk management, let’s talk about the role of the Project Management Office (PMO). A PMO is responsible for continuously monitoring the enterprise environmental factors that might impact the projects and the portfolios of the organization. On top of that, a PMO is responsible for creating a business continuity plan for projects and portfolios.

Working in coordination with other areas, including corporate risk management, the PMO must assess threats and opportunities, and develop a solid fallback plan. Some organizations have done really well during the COVID-19 crisis because their PMOs acted boldly and quickly.

Taking it a step further, many PMOs reevaluated all the projects and portfolios according to changes in the organizational strategy to minimize adverse effects.

Over the last two weeks, I attended various meetings and workshops with PMOs. Some were very innovative in their approaches. Others were more conservative. At the end of the day, the PMO is uniquely positioned to tackle issues that the project managers cannot solve themselves. And COVID-19 is a one-of-a-kind challenge.

 

How to Conduct a Risk Assessment on the Impact of COVID-19

We can divide the risk assessment into external factors and internal factors. For the external factors, you must assess your country’s or region’s exposure to the threat. According to the simulations, it seems that everyone will be impacted. A lot of people will become infected. And there are economic impacts on a global scale. On the other hand, some countries are better prepared to handle the situation, which means they will be able to recover faster.

Here are the key external factors you should consider:

  • Is health infrastructure adequate?
  • How strong is the economy in your country and region?
  • Is your country heavily dependent on imports or exports?
  • Also, pay attention to currency exchange rates, the supply chain and other factors.

You might also apply and combine SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) and PESTEL analysis (Political, Economic, Social, Technological, Environmental, Legal). Once you understand the external environment, it’s time to assess your organization.

Here are the key aspects you should evaluate within your organization:

  • What is your industry? How is it impacted by the COVID-19 crisis?
  • Does your organization have solid corporate risk practices?
  • Is there a business continuity plan in place? Is it effective?
  • Also, take into consideration profit/loss, flexibility, agility, organizational health and more.

Organizational assessment is already going on at all levels. Does your organization seem to be lost and confused? If people in your organization are seriously concerned, but still working diligently to evaluate and to create responses, you are on the right path. If people are panicking and confusion is growing, this is a bad sign.

Finally, let’s focus on individual portfolios and projects. It is possible that many projects will be terminated, canceled or at least paused as the organization tries to figure out how to survive.

Here are the key aspects by which you can evaluate your own projects:

  • Is your project based in high-risk areas?
  • Do you need a lot of people working in person, co-located (such as construction work)?
  • Can your team work remotely with similar results?
  • Also, reassess stakeholders carefully. And evaluate vendors, as they might be severely impacted by the crisis.

To conclude, I would like to remind you that it is important to be proactive. People expect you to lead during a crisis. Use solid judgment, engage your team, document assumptions, constraints and risks and take action. Taking action is paramount.

 

Let me know your thoughts. How is your project performing during the COVID-19 crisis? Do you have any advice or lessons learned to share?

 

 

Posted by Mario Trentim on: March 17, 2020 05:27 PM | Permalink

Comments (25)

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Is it time to take a look at the definition of Risk? Disaster?
Calm down...look around the options. The panic will not solve any situation.
It is time to take your seat around the desk or in front of the video call and review your list of activities to a similar situation.
So, is it time to go on?
In a few weeks, or not, will you need to apply all definitions about the PMO's Risk Management? The statement about the future is not clear, now. But you will have to get one soon.
Mr. Trentim, is it time to take attention to the definition before applying anything?

My current project's main vendor is located at Orange Country, CA. They have just been advised to work from home by the Orange County Authorities till the end of the month (likely to be extended), throwing uncertainty to the project's software test activities using complex test set-up equipment at the vendor's facility...

Thank you for the article on risk. I'm interested in hearing about how other project managers are helping their teams adjust to working remotely. If anyone has strategies that have worked well, please let me know. Thanks!

Thanks for sharing this well written article.

PMOs' responses to the threatening situation vary based on their understanding of the external environment. It ought to be carefully planned by answering the questions (on evaluating your own projects) you posed in your article.

Risk management is to expect/anticipate/predict risks my face the project during the execution to mitigate the impact of any risk happens either it is one of the mentioned in the project risk management plan or it is one of the unknowns.
COVID-19 is a global disaster and fact, neither a risk nor even a crisis, so the title may not be the best title for the article. How to deal will the disaster and its impact on the project? that is the question.
More connections with the stakeholders to hear more from them about their needs, their evaluation of the disaster, how they see the impact on the project,.......etc, not reassess the stakeholder.

As a Korean resides in Seoul, South Korea, I just want to share with you on one thing.

Yes. Risk management is absolutely critical for the uncertain situation.
However before dealing with the specific risk planning for any kinds of known/un-known risks, the related infrastructure shall be required for this kind of virus spread crisis.

South Korea’s medical care systems

From my personal experiences, reasonable and free medical care system shall be established in advance to any persons in this kind of situation.

In recent news, the examination cost for virus is only $150 to any persons including the foreigners in South Korea, and if test result is positive, it will be free of charge.

In other news based on the latest one from SNS, the final billing cost for treating the infected person for about 3 weeks is ONLY $50 even if its total cost is actually $10,000, and government is responsible for the rest ($9,950) of total cost.

Why doing this? It is risk mitigation strategy that not to worry about the medical cost, and test any person who might worry about not to spread in his/her communities.

The bottom line is that the infrastructure such as medical care system shall be flexible for this kind of disruptive situation before the risk planning will be executed.

Few of the initiatives which are and can be instantly implemented are-
Work from home policies,
SLA relaxation,
Increased budget for the firewalls to protect the project and people against the virus,
More focus on Automation rather than manual (if it can be automated...feasibility study )

Not the last but empathetic management in this situation.

Thanks for sharing it.

In my current project i provided means to improve a smart community in each sector: school, health, safety....in this case it could be possible to reduce risk.

I like the comment from Marcius, Covid-19 is more of a disaster than anything else. And the risk mitigation for this disaster is so very different by industry. Manage what you are able to when you are able to. Keep moving forward, when you can. The target of the project completion does not change, what changes now are the daily obstacles and challenges to getting the work completed. Stay Safe My Friends.... That is Project #1!

Covid-19 is an issue that needs managing, not a risk that may, or may not, occur at some time in the future. You ignore issues at your peril.

The occurence of this risk was not even thought of for projects that were initiated last year or earlier. Therefore it could not be added to any risk register. It would be something similar as adding "the planet gets impacted by a meteorite'. The likelihood is so low that it does not get logged in.

Covid 19 is an issue of gigantic dimensions and should be handled by crisis management approach. Every PM should analyze and take the right decisions, in alignment with the sponsor and the policies at organizational and public (governmental) policies. As others mentioned, remaining silent is not an option. Pro activity, and not reactivity.

Thanks for sharing this article. Definitely this was a complete unforeseen risk that the entire world did not see coming however with strong business practises, business continuity planning and agile teams plus a very strong leadership we can have some cushion to bounce back. A project manager leads by example and the biggest weapon as project managers we have right now to protect our projects in face of such crisis is emulating strong leadership skills, belief in our teams and cooperating with govt agencies to practise community welfare as a whole. This is a tough time for the entire world and if we stay together and strong we will emerge much stronger.

At this point as PM it is essential to think about the impact on our projects. The virus itself is a fact that is affecting people, but the risk of Covid-19 and consecuences affecting projects is very high.

I can mainly notice the changes in the laws that are impacting ongoing projects, but also stopping future projects.
The laws of each country change differently, but generally go in "staying home" direction,
so think about possible changes in the laws, changes in the location of resources, changes in available resources, closure of suppliers ... that could affect projects for sure.

Disaster, risk, crisis, constraint, or whatever we want to call it does not change the fact that it is upon us already...unless one is in some part of the world where it is not yet being acknowledged as a threat. It is no longer a "future event". Now it is time to mitigate the impact and yes, PESTEL analysis amongst many others might help us determine what to look for externally, there are still many moving parts that are unpredictable.
Both externally and internally, the HR factors, such as morale will play a significant role.
This might have been the black swan. But if your project did not include contingencies for such, it is not too late to plan ahead to still reduce the impact to your project.
But above all...stay safe and think positive.
Human beings are engineered for success...
We will get through this.

Work from Home is good advice or the people who works in office, design engineers, Architects and senior discipline Engineers for review of Method statements, material submittal, review of Shop drawings, IFCs and any other documents. But the staff related to site works, laboures, skilled and unskilled can not work at home.They have to come to work in field.However in a current situation, who can work from home can do. to support the humanity preventing the pandemic.

Yes, we definitely have to stay home.

Marcius, although there's some confusion about definitions, it is time to act ;)

Rachel, I can tell you that transition to "full" remote work was somewhat smooth here. The issue is that we live in times of quarantine, kids are not going to school and more... Difficult to stay productive for some employees.

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