Risk Management in Projects - how it should add value (but often doesn't)
For any project, people need to know what will be delivered, when it will be delivered, and how much it will cost. Perhaps surprisingly, a very common method for doing risk management within projects does nothing to support this, or provide any help when it comes to making decisions within the project.
Every project has a baseline (deterministic) cost and schedule. Each task has a cost and a duration. In the real world, due to uncertainties and unforeseen events these figures are only estimates, and each item could take more, or less, time (or money) than you planned. These uncertainties can be estimated, and software can be used to estimate the range of outcomes. Managers can then take decisions to seize certain opportunities and mitigate risks, and understand the effects their actions will have on the overall (probabilistic) cost and schedule.
Unfortunately, a number of consultants and software companies actively avoid this approach and instead approach risk management in ways that go against decades of scientific research.
At best, heatmaps like this provide a subjective view of what people in the room think is important - it's the same as writing on Post-It notes then moving them around on a wall. There is no real risk analysis, and it doesn't help the Project Manager decide where to allocate resources next month, whether to prioritise a task this month, whether they need to request additional funds, or how much. Many people think this is effective risk management. It's not.
There are tools which Project Managers should be aware of, and know how they would benefit from using them. Decision trees, bowties and Monte Carlo simulation could help Project Managers identify and assess uncertainty, and turn the information and insights into tangible improvements in cost, quality and time.
(c) Vose Software
Monte Carlo software is easily and cheaply available. For projects where the range and likelihood of delivery dates and overall costs is important then a colourful heatmap won't give you that information. Quantitative Cost and Schedule Risk Analysis (QCRA and QSRA) are regularly used in some organisations, and offer benefits to any organisation of any size in any sector.
Many monthly and quarterly risk reviews are unnecessary, as are standalone risk reports. They don't help with project delivery, they don't help people make decisions, and they aren't a good use of time or money.
If you would like to understand more about what good risk management could look like on your projects, or if you have consultants carrying out risk reviews and giving you colourful pictures which look nice but you don't know what to do with, then get in touch and we can show you how to leverage risk management to help deliver projects on time and on schedule.