Risk Management and the COVID-19 Crisis

 

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?