Risk Response Strategies: Transfer and Avoid

As I’ve noted in other posts, a risk is an uncertainty that matters. Some event has a significant probability of occurring, and there will be a significant consequence if it does. A risk represents a threat, and a wise project team endeavors to identify project threats and analyze them so that the probability of occurrence can be reduced or the cost of the consequences reduced. Or both.

Consider the following proverb:

“The early bird gets the worm, but the second mouse gets the cheese.” — David Jakovac

Mr. Jakovac is correct only if the cheese is in a trap; otherwise, the Second Mouse goes hungry while the First Mouse eats his dinner. Thus, the Wise Mouse looks at the context, seeking potential threats and assessing her exposure to them. If the cheese is indeed in a trap, waiting to be triggered, then she has four potential risk management strategies to consider:

  • Mitigate – try to either trigger the trap from a safe distance or find a way to survive the snap
  • Accept – in effect, volunteer to be the First Mouse
  • Transfer – recruit a First Mouse (or possibly a whole tribe of mice)
  • Avoid – look for another food source

After considering the technical limits of the alternatives available for mitigation (little chance of reducing the probability of occurrence) and the fatal consequences of triggering the snap (little ability to reduce the cost of the event), the Wise Mouse will abandon the first two strategies as unworkable. At this point, Ms. Mouse needs to consider the economics of the Transfer and Avoid strategies.

Transfer

Crappy BumperGenerally, a risk is transferred using one of two mechanisms: pooling and delegating. In pooling, a number of parties at risk contribute funds to finance recovery from an event experienced by a member of the pool. If that sounds like an insurance policy, it is. Surety bonds are also a form of risk transfer, commonly used to absorb the impact of non-performance. Currency exchange rates can be a risk, and appropriate financial derivatives are used to partially absorb a loss. In most cases, pooling is about reducing the financial impact of an event, at some initial fixed cost.

The Wise Mouse is considering a delegation strategy. Delegation can take many forms—from sub-contracting to an experienced performing agency to engaging a contingent worker. Crowd-sourcing is a delegation strategy, as is the use of open-source software. Delegation to someone with more expertise is intended to reduce the likelihood of the event, again at some cost. Other times, as in the case of the recruited First Mouse, delegation is about transferring the consequences. Note that some residual risk will usually be present; in other words, some of the consequences will be borne by the Wise Mouse, possibly at the hands of the First Mouse’s mourners.

Avoid

We avoid a risk by accepting the opportunity cost of not doing something. In projects, this can range from taking something out of scope to making adjustments to the project delivery schedule. Depending on the goals of the project and the nature of the risk, we may determine that the remaining value of all-but-this-one-thing still exceeds the adjusted cost, and we may proceed without it.

Of course, if the value no longer exceeds the cost, it may be better to abandon the project. The Wise Mouse is considering exactly that approach.

Certainty is for People With No Imagination

Eats, Won’t Leave, So Shoot!

Leadership requires a willingness to make decisions under conditions of uncertainty. To be certain, you must believe that you have perfect knowledge of the circumstances and absolute control over the outcome. It also requires you to have absolutely no imagination; “Nothing will go wrong.”  These people often go on to win Darwin Awards. The rest of us acknowledge the limits of our understanding and control. We have horrible dreams, and yell at the heroine in the horror film to turn on the damned lights when you enter the room! We often live long enough to reproduce, or at least have roles in the sequel.

Risk management is about improving the quality of decisions made under conditions of uncertainty. It is unrealistic to demand certainty before taking action and foolish to assume that all will go well, simply because you need it to. Identifying and analyzing risks may help reduce uncertainty to acceptable levels, or it may lead to cancellation of a doomed project. In either case, the analysis of the risk and alternative strategies allows a rational basis for decision making.

Final Roundup: PM Articles for the Week of March 23 – 29

This is the 500th and final roundup of new project management articles published on the web during the week of March 23 – 29. Thanks for sticking with me all these years! Over the next few weeks, I’ll publish a few articles that I wrote for other venues but never got around to posting here, and in November I’ll publish my annual list of public holidays for 2021.

And this week’s video: Camaroonian musician and composer Emmanuel N’Djoké  “Manu” Dibango passed away on March 24th due to complications from COVID-19. He was 86. His 1972 hit, “Soul Makossa (I will dance),” was widely sampled and influenced generations of composers and performers around the world.  6 minutes, safe for work. “A true musician never dies; he just stops performing live.”

Ethics, Business Acumen and Strategy

  • My wife made 39 disposable face masks for a local hospital

    Fred Schmalz interviews Sunil Chopra on how companies can prepare their supply chain for the next disruption by balancing efficiency with resilience. 5 minutes to read.

  • Thomas Choi and colleagues say that the COVID-19 global pandemic proves the value of supply chain mapping as a disruption response tool. 5 minutes to read.
  • Greg Satell argues that we need to prepare for future crises—from artificial intelligence to climate change to the ballooning debt—like we would prepare for a war. 5 minutes to read.
  • Randall McAdory analyzes Tesla’s diverse collection of core technical competencies, and asserts that their market advantage is essentially insurmountable. 9 minutes to read.

Managing Projects

  • Cornelius Fichtner talks with Karthik Ramamurthy on seven techniques for effective project scope management. Podcast, 30 minutes, safe for work. Plus an article, 3 minutes to read.
  • Elizabeth Harrin announces the creation of a new professional community for project managers: #ThePMTribe. 5 minutes to read.
  • Glen Alleman argues for capabilities-based planning—providing an outcome or effect without an a priori specification. 2 minutes to read.
  • Mike Clayton tells us what to put in a project risk register, and how to maintain and use it. Video, 11 minutes, safe for work.
  • Praveen Malik explains how to save a baseline in MS Project, and how to use it once you have. 5 minutes to read.
  • The nice folks at ActiTIME suggest six ways to think of (and track) project costs. 6 minutes to read.

Managing Software Development

  • Stefan Wolpers curates his weekly list of Agile content, from the new future of remote work to the latest Cynefin iteration to enterprise agility. 7 outbound links, 3 minutes to read.
  • Cesar Abeid interviews Johanna Rothman and Mark Kilby on their new book, remote project management, and distributed agile teams. Podcast, 48 minutes, safe for work.
  • Nicole Segerer suggests that evolving software business models require new approaches to establishing and maintaining customer relationships. 4 minutes to read.
  • Kristin Jackvony reviews Enterprise Continuous Testing, by Wolfgang Platz and Cynthia Dunlop. 4 minutes to read.
  • Gojko Adzic did a comprehensive survey to see what’s changed since his classic book, Specification by Example, was published ten years ago. 22 minutes to read, but worth the time.
  • Henny Portman recaps the 3rd edition of Agile NXT, a downloadable magazine from Xebia. 3 minutes to read.

Applied Leadership

  • Karolina Toth interviews Steven McCord, SVP of Technology at WhyHotel, on how to succeed in your first 100 days as a tech leader at a new company. Podcast, 30 minutes, safe for work, or read the notes in 11 minutes.
  • Tom Cagely begins a series on toxic meeting cultures with diagnostics: how to recognize them. 3 minutes to read.
  • Lisette Sutherland interviews Danny Page on socially responsible outsourcing and the finer points of working as a distributed team. Podcast or video, each about 40 minutes, safe for work.

Cybersecurity and Data Protection

  • Das Rush interviews Joel de la Garza on the transformations of information security practices and capacity as more of the workforce goes remote. Podcast, 22 minutes, safe for work.
  • Erich Kron and James McQuiggan advise us what to do if we discover that someone is impersonating our company in a phishing campaign. 2 minutes to read.
  • Ben Dickson shares some additional security precautions to take when connecting remotely to the company network. 4 minutes to read.

Pot Pourri

  • Pascal Papathemelis recaps his webinar on active listening. Great content, too bad I missed it, but this is almost as good. 7 minutes to read, plus a video, 52 minutes, safe for work.
  • Francesco Marcatto makes the case for dot voting as a way for a team to converge on a limited set of alternatives. 4 minutes to read.
  • Esther Derby gives us a cheat sheet for helping those who are new to remote work to conduct better meetings. 2 minutes to read.

Peace be with you!

New PM Articles for the Week of March 16 – 22

New project management articles published on the web during the week of March 16 – 22. And this week’s video: Harry Hall talks about the need to identify a risk owner along with the project risks you want to manage. 3 minutes, safe for work.

Ethics, Business Acumen and Strategy

  • Zorana Ivcevic and colleagues reports on results of a survey that found an alarming level of pressure to act unethically in US organizations. 5 minutes to read.
  • Ron Rivers examines the intersection of technology and labor, from early history to the near future. 13 minutes to read.
  • Adam Rasmi reports that COVID-19 is also impacting negotiations between the UK and EU on a post-Brexit free trade agreement. 2 minutes to read.

Managing Projects

  • Mike Clayton explains how to manage multiple projects at once. Video, 15 minutes, safe for work.
  • Marina Pilipenko tutors us on project cost management. 7 minutes to read.
  • Peter Landau coaches us on making a procurement management plan. Part of it is a commercial, but you also watch television, right? 6 minutes to read.
  • Jory MacKay guides us through writing a communication plan. 9 minutes to read.
  • Brad Egeland walks us through the process of handing a project off to another project manager. 4 minutes to read.
  • The nice folks at Clarizen compiled a list of five books that every project manager should read. 3 minutes to read.

Managing Software Development

  • Stefan Wolpers curates his weekly list of Agile content, from what drives performance of a distributed agile team to disagreement in distributed teams to the magic of conflict. 7 outbound links, 3 minutes to read.
  • Kiron Bondale argues that domain and organizational knowledge are the key requirement for prospective product managers. 3 minutes to read.
  • Tanay Agrawal suggests that product managers need to see their product like a new user, every single day. 5 minutes to read.
  • Henny Portman shows the difference between incremental and iterative Here’s Part Two, about ten minutes to read both parts.
  • Ankur Jain explains a diagram of the DevOps life cycle. 2 minutes to read.
  • Maximilian Bauer says that being smarter about test cases and how they are structured can save money in testing. 7 minutes to read.

Applied Leadership

  • George Pitagorsky tells us how to manage fear and anger in projects. 5 minutes to read.
  • Christine Trodella has some thoughts on managing newly remote workers, when you don’t know how long they’ll be working from home. 7 minutes to read.
  • Sharlyn Lauby uses the Marvel Cinematic Universe to illustrate keys points on how to manage the external workforce, both project-based and recurring. 4 minutes to read, plus a video interview, 10 minutes, safe for work.
  • Amelia Salyers curates a list of 22 articles for leaders from the past few years, published by venture capital firm Andreeson Horowitz. 5 minutes to read the synopses.

Cybersecurity and Data Protection

  • Curtis Franklin gives us a brief overview of how to quantify cybersecurity risks. 4 minutes to read.
  • Brenda Sharton sees plentiful opportunities for cybercriminals in the new “work from home” mantra of COVID-19. 4 minutes to read.

Pot Pourri

  • Elizabeth Harrin gives us some useful pointers for setting up our home office. 4 minutes to read.
  • Stephanie Vozza notes that generalists tend to be more successful, but only if they get really good at a few useful skills that combine to make them stand out. 3 minutes to read.
  • Sarath C P shares six tips for creating an effective elevator pitch. 5 minutes to read. You’ll need to find your own elevator …

Enjoy!