Capturing Upside Risk

Finding and Managing Opportunities in Projects

David Hillson

• Publisher: Auerbach Publications
• Year: 2019
• ISBN:
  9781000691122
• Edition: 1
• Topic: Economics
• Subtopic: Macroeconomics
• Index: Economics

With more than three decades of experience as a thought-leader and expert practitioner, PMI Fellow Dr. David Hillson shares practical insight into how upside risks can be identified, assessed, and managed as opportunities. After reviewing the benefits of identifying opportunities, the book steps through the opportunity identification and management process in detail, describing proven tools and techniques as well as specific tips to make them work in practice. The book places opportunity management in the context of traditional risk management, providing a familiar pathway that leads project managers to discover new benefits and successes.

David Hillson is one of the foremost authorities on risk management. With his latest book he presents a strong case for managing opportunities. As with all of David's books, the style of writing is engaging and easy to understand. There are many nuggets of wisdom in this book, as well as a hands-on approach to leveraging opportunity management as a way of improving project performance. — Cyndi Snyder Dionisio, PMI Fellow, Coronado CA, USA. (Chair of the PMBOK ® Guide, Sixth Edition )

I enjoyed reading this book, which is precise, clear, logical, and persuasive. The clarity of thought and expression explains why David is such a sought-after speaker. This book is a must-read for project risk practitioners, as well as for project professionals who are serious about addressing all the risks on their project, including the good ones. — Dr Dale Cooper, Cammeray NSW, Australia. (Director, Broadleaf Capital International)

At last, a clear and valuable book linking both sides of the coin in risk management: threats and opportunities. David Hillson truly engages the reader on how to deal with these two types of risk in projects, sharing his wisdom and extensive experience in creating value from risk management. Anyone who has to manage risk in real-world projects should read this book to enhance their opportunity management skills. — Professor Salim Al-Harthi, Muscat, Oman. (Director of Risk Management Office, Sultan Qaboos University)

It is vital for value creation in business and in life that we consider uncertainties that would have upside impacts on our objectives (opportunities), as well as downside impacts (threats). Business gets confused between opportunities where there is a binary choice to take or not, and true uncertain opportunities that can be seized, or left to chance. David has persevered in helping us understand this and this important book is a must-read for all leaders who want to create value through the proactive management of risk. — Dr Ruth Murray-Webster, Wakefield, UK. (Partner, Beyond the Deal LLP and Editor, APM Body of Knowledge, 7th Edition )

As project managers, we always seem to focus on threats, negative risks. David Hillson, one of the foremost thought-leaders on risk management, explains approaches to identify and manage opportunities, positive risks and how this will help achieve project success. As with his previous books, David provides a structured approach with examples, tools, and techniques. An excellent resource for all project managers in today's world. — Peter Monkhouse, Toronto ON, Canada. (Past Chair PMI Board of Directors)

Section B

Managing Project Opportunities

Chapter 4

Setting the Scene for Opportunity Management

This chapter describes the first step in the risk management process. All projects are unique, with different levels of risk exposure, so we need to tailor the risk process to match the risk challenge faced by this project. That’s why we include an initiation stage at the start of the risk process, deciding how to manage risk on this particular project.

If we’re serious about identifying and managing both opportunities and threats in our project, we need to make our intentions clear right from the start. The tailoring decisions we make about how to manage risk on this project will include the fact that we expect to find and capture project opportunities and use them to improve our chances of success. In this chapter, we first describe the generic purpose and principles of risk management planning, then describe in more detail some of the more challenging aspects. At each stage, we’ll explain where things are different for a risk process that covers both opportunities and threats. If we want to manage opportunities effectively in our project, we need to set the scene, so that everyone knows what to expect (and what is expected from them).

Purpose and Principles of Risk Management Planning

Most project teams are keen to identify risks. After all, we want to give ourselves the best chance of success, and that means knowing what risks are faced by the project so that we can get on and manage them, right? So, let’s start now with risk identification, right?

Wrong! Immediately we try to start identifying and assessing risks, we come across a problem. Which techniques shall we use for risk identification? Who should we involve in identifying risks? What kind of risks are we looking for? How will we assess and prioritise them? If we intend to estimate how important each risk is, how do we know what “high probability” or “high impact” means? Who should we inform about the risks we’ve found, and how often will we need to review risks?

The answers to these and other questions will vary, depending on the nature of our project. The risk management approach we should adopt for a large and complex megaproject that makes a vital contribution to corporate strategy will be very different from the approach we might take for managing risk on a small simple project. This need for scalability and tailoring must be addressed before we start identifying, assessing, or responding to risks. Key factors to be considered include project size, project complexity, and the strategic importance of the project. This is why the risk process has a separate step before risk identification.

First, we need to plan our approach to managing risk on this project. Consequently, the purpose of risk management planning is to ensure that the risk approach that we adopt for this project is appropriate and effective.

A number of principles apply to this important first step in the risk process.

Define objectives at risk and scope of risk process

The risk process cannot start until we know why we need to do risk management on this project. A key outcome from the risk management planning step is to define what is at risk, by clearly stating each of the main objectives of the project. These are often detailed elsewhere in the project documentation, such as the project charter or business case, but it is still important to state them clearly at the outset of the risk process. Risk is “uncertainty that matters”, and it matters because if it happens it would affect achievement of project objectives. We also need to understand whether all project objectives are equally important, or whether one or more have higher priority than others. This will determine the way risks are prioritised, ranking a risk to a high-priority objective above a similar risk which might affect a lesser objective. We will need input on prioritising objectives from key project stakeholders, such as the project sponsor or business owner.

Having stated the project objectives, we also need to define the scope of the risk process that will be implemented. It is not always necessary to assess risk in relation to all project objectives, although this is most commonly the approach. In some circumstances the risk process may be focused only on one or two objectives, or on a particularly risky element of the project. Clear boundaries for the risk process must be set, so that the project team know what they are aiming to do.

Reflect risk appetite of key stakeholders in measurable risk thresholds

“How much risk is too much risk?” This question allows us to understand the risk appetite of key stakeholders in relation to project objectives.^* Risk appetite describes the underlying drive to take risk in order to gain reward, and it needs to be expressed in measurable risk thresholds against each objective. If we ask the project sponsor, “Is there any flexibility in the project end date or budget? How much tolerance does our client have for performance variation in final deliverables?”, the answer is rarely “Zero” or “None”, but we need to know how much flexibility or variation might be allowed. Without this information about risk thresholds, it is impossible to determine whether the level of risk in our project is acceptable or not. We can then use our understanding of risk appetite and risk thresholds to shape specific definitions of levels of probability and impact that will be used when prioritising risks.

Tailor risk process to match the risk challenge of the project

Once we know what is at risk (objectives), the scope of the risk process, and how much risk is acceptable in the project, we can begin to tailor the risk process. If the purpose of risk management planning is “to ensure that the risk approach that we adopt for this project is appropriate and effective”, then we need to define what we mean by “appropriate and effective” for this project. This recognises that risk management is not one-size-fits-all. Although the basic steps of the risk process are the same in all cases, the level at which they are implemented on a particular project can and must vary.

As a result, the risk management planning step describes how risk management will be conducted on this particular project, including:

• Techniques to be used
• Reporting requirements
• Review and update frequency
• Risk-related roles and responsibilities

Summary

The purpose and principles of risk management planning are summarised in Table 4-1.

Table 4-1 Purpose and Principles of Risk Management Planning

Purpose	To ensure that the risk approach on this project is appropriate & effective
Principles	Define objectives at risk and scope of risk process Reflect stakeholder risk appetite in measurable risk thresholds Tailor risk process to match the risk challenge

The Typical Risk Management Plan

Purpose

As we consider the purpose and principles of risk management planning, it’s clear that a number of important decisions need to be made during this step about how risk will be managed on our project. People need to know about what was decided, including our project team as well as other stakeholders, especially the project sponsor or business owner. This means we have to document the results of our decision-making and make it available to those who need to know.

Unsurprisingly, the main output of risk management planning is a Risk Management Plan (RMP)! This is one of the main scoping and controlling documents of the project, forming part of the overall Project Management Plan. The purpose of the RMP is to record the outcome of key decisions on how risk will be managed on this project.

Putting the principles of risk management planning into practice and recording the results in a project document doesn’t sound very exciting, and perhaps this is why many project teams omit this step in favour of getting on with risk identification. A well-known project proverb says, “To fail to plan is to plan to fail.” While this may be overly simplistic (although memorable), it contains an important truth. Without clearly specifying the parameters of risk management on our project, we can’t tell if we’re doing a good job. The RMP provides a standard against which we can measure our risk process (and against which we could be audited!), and we can then make necessary adjustments. This wouldn’t be possible if this important document were missing.

This is why our risk process needs to include risk management planning as a distinct step before risk identification, to ensure that it is not forgotten or overlooked. Provision of templ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of Figures
• List of Tables
• Foreword
• Preface
• About the Author
• Section A Why Opportunities Matter
• Section B Managing Project Opportunities
• Section C And Finally...
• References and Further Reading
• Index