Risk and Uncertainty – Managing Expectations
As stated in last month’s entry “A key assumption supporting healthy expectations is that there is uncertainty and that the more complex and hostile the working environment is, the greater the uncertainty.”
Attitudes regarding risk and uncertainty are central to establishing healthy expectations. While it seems quite obvious from personal experience and history that uncertainty is the only certainty. Anything can happen. That is why project management 101 teaches that risk management must be an integral part of project planning and control for the project to be performed effectively.
The central activities of risk management are identification, assessment and response planning. These must be integral parts of the estimating process. When they are done well, stakeholders will have realistic expectations because estimates and the assumptions underlying them will be communicated so as to leave no room for delusional thinking. Further, risk management enables the plan to be optimized.
What is delusional thinking? It is thinking that in a complex project a single point estimate is guaranteed to be realized. Delusional thinking is thinking that there will not be any changes, that everything will be thought out with 100% accuracy and that everything will go as planned. Risk management dispels delusional thinking because it explicitly states the nature of the risks that might befall the project in terms of their probability of occurrence and their potential impact on the project’s performance and outcome.
Response planning takes it a step further. It attempts to squeeze out risk and uncertainty by identifying avoidance and transfer options, to minimize the residual risk and to establish reserves or buffers that enable development of a range of possible outcomes.
Engaging the Stakeholders
Every project manager with any sense understands the need for and principles of risk management. The challenge is to engage project performers, clients and sponsors so that they understand, take part in and even insist upon an effective risk management process.
For performers who provide estimates of their work, the PM should make it clear that a multipoint estimate with assumptions for most likely, optimistic and pessimistic scenarios is necessary. For performers who are given estimates, there must be an opportunity to assess assumptions and risks and accept their assignment, rather than being forced to work under irrational assumptions.
For clients, they must be drawn into the risk management process so they can help to identify risks from their perspective and understand the degree of uncertainty that exists in the project.
Sponsors must be exposed to clear statements of risk and uncertainty, in the form of range estimates and statements of assumptions, even when they are trying to force project managers to commit to unrealistic estimates and schedules.
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