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P L A N N I N G 1 0 1 : I D E N T I F Y I N G & M A N A G I N G P R O J E C T R I S K

You know that the best you can expect is to avoid the worst1

THE PURPOSE OF PLANNING IS TO IDENTIFY AND TO MANAGE PROJECT


RISK. Without adequate planning, planning that identifies and manages project risk,
projects tend to fail. About half tend to come in late, over budget or both and a
quarter are abandoned (17).2 Common reasons for project failure are that they are
impossible as originally scoped, they are challenging beyond the resources allo-
cated to them, and/or they are not competently managed (18). When an organization
attempts a portfolio of simultaneous projects, individual project risk is often in-
creased significantly due to the following reasons: (a) too many projects are compet-
ing for scarce resources simultaneously; (b) project priorities are not properly aligned
with broader business and technical capabilities; (c) some projects becomes inade-
quately staffed or funded; and (d) internal organizational capabilities to manage mul-
tiple projects are unrealistically assessed (19).

MANAGING PROJECT RISK BEGINS WITH THE PROCESS FOR SELECTING


PROJECTS. Without adequate analysis of project risk, because risks are unknown,
it is unclear whether a particular project makes sense for the organization to under-
take, much less understands what “going right” looks like (20). “Projects are under-
taken based on the assumption that whatever the project produces will have value”
(21). This assumption must be tested in depth through analysis. This is the beginning
of any real planning process. The entire planning process itself is to reduce uncer-
tainty of outcome (27). Some risks, if not properly managed, can sink the ship.3

SCOPE RISK. Of the testing of original assumptions that propel the project, the
most important is scope risk. If the scope is not carefully thought out, the project, no
matter how many resources are thrown at it, or how long one works at it, may be
literally impossible (40). Since few projects are completed with the original scope
perfectly intact, managing scope risk entails understanding in detail the require-
ments of the initial scope and anticipating a process to handle scope change risks
of: scope creep (initial requirements are not well specified), scope gaps (committing
to a project before requirements are known), and dependencies (inadequate re-
search of legal and regulatory requirements, etc.) (41-43). Project deliverables and
scope planning must be in writing and typically includes the following information:

a description of the project (what are we doing?);

project purpose (why are we doing it?);

what the project will and will not include (“is/is not”);

dependencies and high-level risks;

rough order-of magnitude costs (53).

LYLE A. BRECHT 410.963.8680 DRAFT 1.4 CAPITAL MARKETS RESEARCH --- Wednesday, July 14, 2010 Page 1 of 2
P L A N N I N G 1 0 1 : I D E N T I F Y I N G & M A N A G I N G P R O J E C T R I S K

SCHEDULE RISK. Planning includes assessment of three types of schedule risk:

delays: schedule lengthening due to project management snafus;

estimates: inadequate task durations assigned to project activities;

dependencies: environmental factors outside direct project control (71).

RESOURCE RISK. Planning includes assessment of three types of resource risk:

people: key staff availability and reducing staff losses during the project;

outsourcing: managing on-time service delivery and quality;

funding: adequate funding to successfully accomplish the project (100-05).

ANTICIPATING THE RISKS OF WHITE AND BLACK SWANS OCCURRING. White


swans are rare and unusual expected or known events with consequential risk
(probability times cost). Black swans are rare and unexpected or unknown events
with consequential risk (probability times cost).4 Good planning always includes risk
mitigation strategies for both known and unforeseen risks (185). The objective of
planning is to separate the parts of the project that are less risky from the aspects of
the project that are less well understood, and therefore more risky (149).

By the process of writing the plan, the opportunity is that others may assist the pro-
ject team to find defects and omissions, and “seek an improved plan, quickly” (127).
When mitigation is not an option for white or black swans that occur, good planning
includes contingencies to complete the project with minimal impact to the deadline
and cost (201). The ultimate rationale for project planning is that it constitutes the
best process presently known for learning whether a project is feasible (332). Be-
cause a project is technically feasible does not mean that is institutionally, economi-
cally, or politically feasible. The object of planning is not to develop the perfect plan,
but the best one possible given existing constraints (127).

A good plan, violently executed right now, is better


than the perfect plan executed next week.
- General George S. Patton

1 Italio Calvino, If on a Winter’s Night a Traveler (1979) in William Poundstone, Prisoner’s Di-
lemma (New York: Doubleday, 1992), 53.

2Page numbers in parentheses refer to: Tom Kendrick, Identifying and Managing Project Risk:
Essential Tools for Failure-Proofing Your Project, 2nd Edition (New York: AMACOM, 2009).

3See Joe Stephens, “Lessons from Exxon Valdez spill have gone unheeded,” The Washington
Post (July 14, 2010) at http://www.washingtonpost.com/wp-dyn/content/article/2010/
07/13/AR2010071306291.html?nav=rss_email/components.

4 The objective of projects is to reduce systemic risk. Too much systemic risk and utilities fail,
always. See http://www.scribd.com/doc/22163392/Consequential-Catastrophic-Risks.

LYLE A. BRECHT 410.963.8680 DRAFT 1.4 CAPITAL MARKETS RESEARCH --- Wednesday, July 14, 2010 Page 2 of 2

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