Category Archives: Risk Management

The Risk Management Process

A short (under two minutes) video blog, introducing the simple four step process for managing project risk, fully described in my new book, How to Manage a Great Project.

How to Manage a Great Project

Go to the How to Manage a Great Project website

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How to Manage a Great Project by Mike Clayton

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Negotiating Estimates

There are going to be some people who, quite properly, take exception to the title of this blog: ‘the estimate is the estimate – it is not negotiable’.

And that would be a commendable position to defend in my view; but a defence that, in some contexts, would fail. The client has their own position, just as the project planner has theirs. One is based on estimation and the other on expectation, priorities, anticipation and hope. And don’t tell me ‘hope isn’t a strategy’ – no, it’s not. But it is a very real stance many clients take.

Part of your role as project leader is to ensure that your project estimates are robust and contain prudent levels of contingency. Part of your client’s job is to screw the cost and time budget – including contingency – as much as they can… and then expect you to deliver on budget, on target and on time.

So in the real world of managing stakeholders and clients, you need a negotiating strategy that will leave you with a budget or schedule estimate that you can feel confident about. Step one, of course, is to do a robust job of figuring out your best estimate and how much contingency is really prudent, in the light of a thorough evaluation of risks.

Planned Duration or Cost

Planned Duration or Cost

Now consider your negotiating stance and add to this estimate a ‘negotiating contingency’.

Negotiating Duration or Cost

Negotiating Duration or Cost

Now, once you have done that, start your negotiation, but do not allow your first concession to exceed one half of your negotiating contingency. Likewise, never let any subsequent concession exceed half of your remaining negotiating contingency. Simple mathematics will ensure that, at the end of the negotiation, if you follow this strategy, you will always have all of your prudent contingency.

Negotiating Contingency

Negotiating Contingency


This is one of the pragmatic small-medium-sized project tips in
How to Manage a Great Project

Go to the How to Manage a Great Project website

Buy from Amazon UK Buy from Amazon.com

How to Manage a Great Project by Mike Clayton

Simplifying Project Complexity

or, In Praise of Small Projects

Some projects are big… and there is just no getting away from it. And big usually means complex.

Other projects get big, not because it is inevitable, but because people keep throwing in more and more components. And we are all guilty of it; customers, clients, sponsors, senior users, suppliers, developers and yes, even project managers. We all succumb to ‘why don’t we just…’ from time to time.

And ‘just’ is such a sly, deceptive word. Because it implies such a little thing. And often the ‘why don’t we just…’ is a little thing, on its own. The problem is that, if we do just… then it adds to something bigger, and makes it significantly more complex.

Simple Networks

Let’s look at why. with the simplest of possible models, a fully connected network. And we will start with the easiest of networks, with two, three, four and five components.

Small Networks

A project requires the co-ordination of many different components:

  • people
  • material resources
  • physical assets
  • specifications
  • deliverables

Simple Maths

Each needs to be co-ordinated with many – maybe even all – of the others, The simplest assumption (which is not going to be true in most cases) is that each component must co-ordinate with all others. In this case, the number of connections (a measure of the complexity of the network) can be calculated as:

c = n(n-1)/2

That is, the number of connections (c) is one half of the number of nodes (n) multiplied by one less than the number of nodes. To see why this is so, just look at the next example in our series:

6 node network

If only our projects had such small numbers of components. As the number of nodes gets bigger, the number of connections becomes closer and closer to half of the the square of n. So, for:

  • n=50,  n2/2=1,250, c=1,225
  • n=100,  n2/2=5,000, c=4,950
  • n=200,  n2/2=20,000, c=19,900
  • n=500,  n2/2=125,000, c=124,750
  • n=1,000,  n2/2=500,000, c=499,500

Rapid Growth in Complexity

Growth in complexityThis means that the graph of the complexity of a fully connected network shows it complexity increasing rapidly, with each additional node.

I should just address the challenge: ‘projects are not fully connected networks.’ No, they are not. But if a given project has a fill ratio of r, where r is between 0 and 1, then this does not change the shape of the curve. This is a simplified model that is broadly (but not universally) applicable.

So, now we can get to the crunch… simplifying a project. Consider a small project of 1,000 components. The complexity measure is approximately 500,000.

Simplify

What if we could split it into two smaller projects of say 600 components. Then the complexity measure of each would be approximately 180,000 – giving a total complexity measure of 360,000. There will be interdependencies between the two, but nowhere near140,000 of them. We have simplified – and de-risked – our project considerably, by turning it into two smaller projects.

The ‘so what?’

Firstly: think hard before adding anything extra to your project. Don’t just evaluate the incremental cost, but consider the big impact it will have on the overall project complexity and therefore risk.

Secondly: where you can, split big projects into smaller ones, and avoid amalgamating small projects into one big one.

Eight Steps to deliver on budget, on target and on time

When I started thinking about how to write How to Manage a Great Project, I wanted to make it as simple as I possibly could – but no simpler.

I also wanted to include as much as possible of the content and style of my successful training programmes and seminars – because I know that they really work. People find them compelling and come away with real insights and practical tools.

But the structure of a training course needed a little more of a framework to it, so i devised eight steps to follow… knowing full well that projects are iterative. In the real world, project managers will have to cycle back and refine steps at different stages of the project. But it seemed to me that for novices, a step-by-step approach would make more sense than a stage-by-stage approach, with all of its repetition, or a thematic approach (favoured by formal methodologies like PRINCE 2 and bodies of knowledge like the PMI’s) which does not set out how to proceed, if you are really new to project management.

So, here then are my eight steps:

Step 1: What do You Want?
  • Define what your project is and is not, with goal, objectives and scope
  • Base these on clear requirements
  • Add detail with specifications
Step 2: Does it Stack Up?
  • Build a robust business case
  • Support it with a solid investment appraisal
  • Support rigorous decision making
Step 3: Who Cares?
  • Pay attention to the needs and perceptions of your stakeholders
  • Put in place good governance
  • Communicate relentlessly
Step 4: How will You Get What You Want?
  • Build a plan, sequence and schedule
  • Figure out the resources you need
  • Decide how you will get the quality right
Step 5: Who Will Help?
  • Build a team
  • Allocate work
  • Manage and lead your team
Step 6: What if it goes Wrong?
  • Plan out as much risk as you can
  • Identify risks throughout
  • Apply the six strategies for managing risk
Step 7: How is it Going?
  • The monitoring and control loop
  • Control inevitable (and surprising) change
  • Report on progress
Step 8: How did it Go?
  • Handover your finished project
  • Close down in an orderly fashion
  • Say ‘Thank You ‘

Here is a poster that I created. You can download this poster as a full colour A4 pdf file by clicking on the image.

Truth Decay

The truth is not a constant. Knowledge changes and you must change with it if you are to stay in control.

When I was a child, enchanted by science, I learned about planets and dinosaurs. I learned about the outermost planet, Pluto, and the giant saurischian, Brontosaurus.
Now, Pluto is no longer classed as a planet (but as a dwarf planet, along with Eris, Ceres, Haumea & Makemake) and the name Brontosaurus has been relegated to a curious historical footnote against Apatosaurus (whose skeleton body was once insulted by the wrong head and called a Brontosaurus).

In every field of human knowledge – from astronomy to zoology and from geology to sociology – we make progress when new knowledge challenges old ideas. Consequently, the wisest stance to adopt is scepticism: ‘a tendency to doubt’.

For project mangers, doubt is a valuable weapon in your professional arsenal.  Let’s look at some examples.

Project Planning and Doubt

Amos Tversky & Daniel Kahneman (whose wonderful book, ‘Thinking: Fast and Slow‘ I have recommended before) coined the term ‘Planning Fallacy‘ to describe the well-observed tendency to assume that the time things will take is pretty close to the best case scenario. I would add to that ‘Planning Delusion‘; a tendency to believe our plans will be a true reflection of events. They rarely will. Doubt is the key to proper planning and preparation – doubt your best case scenario and doubt your plan.

The only rule I think we can rely on here (and notice, I say ‘think’, connoting doubt) is ‘Hofstadter’s Law’:

‘It always takes longer than you expect;
even when you take into account Hofstadter’s Law.’

This was coined in his book ‘Godel, Escher, Bach: An Eternal Golden Braid‘.

Project Delivery and Doubt

When things go well, we fall into an optimistic bias that leads us to suspect that we are working on a special project that is an exception to Hofstadter’s Law. What rot. Healthy scepticism keeps your senses attuned to the problems, delays, and general foul-ups that are the very nature of life. The sooner you spot them, the simpler it tends to be to fix them, so the heightened awareness that doubt brings is the key to staying in control of your project.

Risk and Doubt

The nature of risk is uncertainty, so where can doubt be of more value? And there are different types of risk.

  • ‘Aleatory risks’ represent inherent uncertainty in the system – we cannot know where a ball will land when the roulette wheel spins.
  • ‘Epistemic risks’ arise uncertainty the uncertainty due to the gaps our knowledge.
  • ‘Ontological risks’ are those about which we are wholly unaware.

We therefore tend to believe that absence of evidence is evidence of absence – and are frequently wrong. Once again, doubt would prevent this mistake. For a summary of these kinds of risk, take a look at my simplified  ‘Four Types of Risk’ infographic.

Stakeholders and Doubt

I am working on my book on stakeholder engagement (publication spring 2014, Palgrave Macmillan) and spoke with a former colleague about his experiences – thank you Paul Mitchell. I loved his tip that:

‘just because they are quiet; it doesn’t mean they agree.’

Spot on – absence of evidence again.

Resistance and Doubt

When people resist our ideas our first instinct is to tackle that resistance – to take it on and aim to overcome it. Wrong! Step 1 is doubt: ‘what if they are right and I am wrong?’ It is a crazy notion, I know, but if it turns out to be true, doubt can save you a lot of wasted time and a possible loss of reputational capital.

Performance and Doubt

I attended an excellent one-day seminar on Positive Psychology in Organisations, led by the inspirational Sarah Lewis. One take away is the doubt we should apply to excellent performance. We tend to consider it to be ‘what we expect’ so we focus on fixing poor performance. One of the vital practices of the best and most flourishing organisations is to focus on this ‘positive deviance’ and work hard to understand and then replicate it.

Decisions and Doubt

Doubt frustrates decision making so it cannot be a good thing, can it? Well, yes, it can. Often, doubt arises from ‘gut instinct’. We know what the facts are telling us, but our intuition disagrees. Daniel Kahneman (yes, him again) will tell us that our instincts are fuelled by bias and faulty thinking, but another excellent thinker, Gary Klein (author of ‘The Power of Intuition’) reminds us that in domains where we have true and deep expertise, that intuition may be working on data we have not consciously processed. Doubt should lead us to look more deeply before committing to an important decision.

Time Management and Doubt

One of the reasons clients most value my time management seminars is that I don’t have a system. Which is good for them, because their people have numerous interruptions in their working day, meaning that any plan they draw up will be stymied by necessary reactions to events. I do advocate making a plan; but I also advocate reviewing it frequently. Sticking to an out of date plan, based on yesterday’s priorities is worse than having no plan at all. This is, of course, a cornerstone of good monitoring and control for us as project managers.

Stress and Doubt

Doubt causes stress, because doubt robs us of control. Is the solution, therefore to work hard to eliminate doubt? It could be in some circumstances, but the solution to removing stress is to regain control, and this need not require you to remove doubt, but to embrace it and make it part of your process. That way, you keep the value of doubt, but take control of how you apply it.

Wisdom and Doubt

Doubt and scepticism suffuse my whole concept of wisdom. It arises from the combination of perception – noticing new evidence – and evolution – altering your world view in accordance with your new knowledge. It features in conduct and judgement, and even in fairness. And what authority can you have, if you hold fast to old certainties in the face of new realities? For more about my concept of what wisdom is, and how to develop it as a professional, take a look at my book, Smart to Wise.


This article was first published in June 2013, in my monthly newsletter/tipsheet, ‘Thoughtscape’. Why not subscribe to my Thoughtscape newsletter?


Red and Green Buttons

Red Button Green Button

Did you ever come across and idea so smart and so simple that you wish you’d thought of it? Here’s one I came across just now, from Seth Godin.

It isn’t a marketing idea – so don’t ignore it if you know who Seth is and marketing isn’t your thing…

It is an ingenious project management idea that will speed your projects along just a little faster: Understanding critical path.

A quick tip – the first time I read it, I misread it and swapped red and green to fit what I would have done!  Is this an example of red/green priority blindness?

T is for Thrill

What is your appetite for risk? If you have a high appetite for risk, then chances are you are what Frank Farley (Professor of Psychology at Temple University, Philadelphia) would describe as a ‘Type T’ personality.

‘Type T’s  crave excitement, stimulation and arousal, often through thrill seeking behaviour. They enjoy variety and change and have a high tolerance for uncertainty. In day to day life, they are psychologically resilient, believing that they control their own fate. They come across as confident and assertive.

Farley splits ‘Type T’s into two sub-types:

T-Positive

The T+ subtype shows predominantly healthy risk-taking. They are highly creative innovators, prepared to challenge conventional thinking and to take the lead. These are the people who find solutions, think differently and change the world.

T-Negative

The T subtype shows a more destructive personality, taking dangerous risks in search of ever greater thrills. Delinquency and crimes of excitement are the result of this personality taken to extremes. At a lesser extent, a T may put their own life at risk in a dangerous sport – that can also result in serious risk to the people around them or to would be rescuers.

There is an excellent 5-minute video of Frank Farley talking about this on YouTube.

 

Towards the end of this video you will have heard Farley discussing how to provide suitable stimulation for ‘Type T’ children. I wonder if T behaviours start to arise when children have insufficient creative and productive – socially appropriate – outlets, which could lead them to a T+ orientation.

The Genetic Source of Type T

In an earlier blog, ‘Risk Taking – it’s in your genes’, I described the genetic research of Luke Matthews (Harvard University) and Paul Butler (Boston University), who have found of mutations to a dopamine receptor gene that may be linked to risk-taking. I would love to see research on correlating these mutations with Type T personalities – mindful as always that correlation would not form proof of causation.

Type T and Project or Change Management

Farley’s last statement in the video is his assertion that surviving in the 21st Century is about dealing with change. This has always been an essential skill for managers of change. Yet, as project managers, we ted to spend a lot of our time managing-out risk and creating an environment that we can control. So I wonder: how much of a Type T makes a good Project Manager or Change Leader?

We need:

  • tolerance for ambiguity
  • a feeling that we can control our fate
  • self-confidence
  • creative thinking and a preparedness to innovate

Yet we must disdain:

  • toleration of any unnecessary risks
  • innovation for its own sake
  • creating or seeking out thrill and stimulation
  • open, rule-free environments

What balance of Type T or its opposite (which I shall name ‘Type C’ for ‘caution’) do you see as appropriate?

Post Script: The Estimation Debate

Some of my readers may be aware – or even involved – in the debate about whether estimation is sensible or practical in project management – especially in large systems projects. I wonder if the two sides of this debate represent in some ways a polarisation of:

  • Type T‘no estimates’ – let’s figure it out as we go along
  • Type C – estimates are essential for accountability and control

I confess that I have not got involved in this debate because others have articulated my own views far more robustly and rigorously than I could have (see in particular Glen Alleman’s Herding Cats blog for many articles on this).

But I also wonder if my inability to get my head around why anyone would not start with making the best estimates that the data permit is not directly related my low Type T tendencies. If you have been interested in the ‘no estimates’ debate, please do comment.

Post Post Script: It’s Bonfire Night

This blog is published on 5 November and tonight is Bonfire Night in the UK. If you are attending or making your own fireworks display and bonfire tonight: be safe!