Managing Risk – Part 1

This is the start of a 5 part series on managing risk. Risk management is second only to communications as a core skill for project managers and this week’s 5 part series offers a quick refresher on some of the important concepts.

What is Risk?

The pyramid below lists stages of understanding ranging from low (to bottom of the pyramid) to high (the top).

The first stage is pure uncertainty. I’ll use a coin flip to illustrate these different stages, you’re going to flip a coin but you’ve absolutely no idea of what the outcomes could possibly be. You’ve no ideas that heads is more likely than the coin disappearing in a puff of smoke.

The second step is to understand at least some (but not all) of the potential outcomes, for example if I flip a coin, it could be heads.

The third step is the complete set of outcomes. If I flip a coin it could be heads or tails and no other outcomes are possible.

The forth step is to know the probabilities associated with an outcome for example 50% heads and 50% tails.

The final step is to know the outcome. This doesn’t work so well with coin example because a coin flip is designed to maintain a balance of uncertainty between two outcomes, but if you were a physics genius and knew exactly how the coin would be flipped, how clean the coin was on each side, and the impact of wind direction, then you would know in advanced how the coin would land.

But, hang on, you ask, in this final example risk management isn’t needed?

Exactly, that’s the point. Risk management is a way of dealing with our imperfect understanding of the world and can be done away we get to a total understanding of the situation so as to predict the outcome. Just as a perfect driver wouldn’t need a seat belt. In most cases, though, we’re not this good and risk management is still needed.

Change Management and (gasp) Fun

In case you haven’t seen these viral videos from Volkswagen, they make an interesting point about change. This experiment attempts to show that people are more likely to change their behavior if it’s fun to do so. Hardly, scientific, but they are clever and inspiring. This video shows how people are more likely to take the stairs vs. an escalator if you make the stairs respond like walking on piano keys. Also a good reminder on balancing sticks and carrots, often the using a stick (punishment) as a form of motivation seems easiest, but offering carrots (incentives) can get better results.

Next, people are more likely to slow down if they can receive cash from those who speed via a lottery. Frankly, I think this one has less to do with fun and more to do with the power of financial incentives.

Finally, there are more ideas for improving recycling and bin/trash usage at http://www.thefuntheory.com/

Every Project Is A Negotiation

One of the challenges of project management is making accurate predictions. But the second challenge is that executives often don’t fully understand project management and very often want delivery faster than your initial plan, regardless of how accurate that initial plan is. If you present an initial plan to a certain kind of executive, they’ll ask for faster or cheaper delivery (or both). So if that’s the case it doesn’t matter how accurate your initial plan is – in fact accuracy is a hindrance. What matters is how much padding you have.

It’s common practice to add buffer to plan for schedule slippage. It might also be worth adding some buffer for that executive review, so you can subsequently over-deliver in accordance with his or her expectations. Not optimal, but a perhaps a better option than having to try and find cuts that simply won’t be there in a completely accurate and well resourced plan.

Project Management: NASA vs. UK DoD

Looking at the project performance of organizations such as US’s NASA or the UK’s Department of Defence in isolation can make it hard to understand what a particular percentage cost overrun or delay in months actually means.

Below the performance of the two is compared. The portfolios are relatively similar in scope, one containing 10 projects the other 15. Cost overruns are relatively similar too 15% vs. 19% of initial budget. However, the Department of Defence experiences longer project delays.

Nonetheless, estimation appears worse at NASA since all projects are delayed and over budget, and this is not the case at the Department of Defence.

Scarcity, the primary of driver of innovation?

Interesting post from the Harvard Business Review, arguing that the presence of constraints is what really determines quality innovation. For example, the author argues that the rising cost of 30 second advertising spots prompted innovation in different forms of advertising. On one level, this may sound like economic theory, but it’s a does suggest a counter intuitive idea.

If you really want to come up with breakthrough idea, perhaps you will do better with less resources, not more?

And fans of Fred Brooks and Mythical Man Month will recall the same argument being made for different reasons – if the team gets too large, then communications get too complex. Also, Fred Brooks also has an interesting point about how scarcity changes depending on the project in question.

Improving Cost Estimation

photo: Thomas Hawk (via Flickr)

The Government Accountability Office provides a reasonable useful framework for cost estimates, they should be:

Credible – this means that sensitivity analysis should be performed on cost estimates to see how much they move in relation to changing assumptions. In addition, cost estimates should be verified by least one other party.

Well-documented – this simply involves making sure all the steps and assumptions in determining an estimate are recorded.

Accurate – this sounds obvious, but the goal is to ensure the estimate is based on the costs that are most likely to be incurred.

Comprehensive – the goal here is that the estimate includes all the costs throughout the life cycle of the work performed.

Not radical by means, but a good cross-check on your current cost estimation process.

Asking Better Questions

The questions you ask determine the quality of answers you receive. Project managers should care about this more than most, because getting early information on how things are really progressing is the lifeblood of project management. It’s good to avoid leading or biasing questions by removing anything that assumes a particularly positive or negative answer from how you phrase the question. Even better is to use a question style that remains neutral and encourages comparison and reflection – for example by asking how the project is going relative to other project of a similar nature or at the same point from completion.

Project Failure – Wembley Stadium

Wembley Stadium (photo: Martin Pettitte via Flickr)

Wembley stadium is the home of English football (or English soccer if you’re American) and was rebuilt in the 2000s replacing the original structure from 1923. The project took 5 years longer than first estimated and costs were more than double initial estimates. The stadium uses an innovative steel arch that adds aesthetic appeal, but is also load bearing and minimizes the need for internal support that could have obstructed views within the stadium. As a result the arch improves the quality of the seating. The design wasn’t quite a novel as the Sydney Opera House or Guggenheim Bilbao but nonetheless included a design element in the arch that was unprecedented, making best practice techniques such as reference class forecasting impossible because there are no useful historic estimates to draw on – it had not been done before. This lack of historical precedent is often a red flag in accurate project planning.

photo: Kol Tregaskes via Flickr

There appear to be several reasons for delay in the case of Wembley stadium:

Bidding Process and Winner’s Curse

The contract was bid out and awarded to one of the lowest cost bids. This creates a winner’s curse situation, where it’s likely that the winning bid is too aggressive in estimating the actual costs of the project. The cost of the project rose 36% between the bid being accepted and the contract being signed.

Implementation Of An Unprecedented Design

The arch implementation was problematic, ultimately the sub-contractor for the arch was replaced midway through the project, and the delay caused further problems. It appears that the the fundamental issue was attempting a stadium design using a load bearing arch that was novel and untested in previous stadium designs. This is typical of projects that are too innovative, and is one of the reasons that the Denver Airport Baggage System failed. Projects with formal budgets and timelines are not the place to be prototyping unproven techniques and processes. At least not if you’re hoping for a credible initial estimate of how long the project will take.

Source: Martin Pettitt (via Flickr)

Information Flow and Incentives

Information flow around the project was never straightforward and incentives were not well aligned. The contractor was conscious of disclosure to their shareholders and their relationship with the sponsor of the project became so tense as to ultimately end in legal action. In part, this appears to be related to the fixed price nature of the contract – any delay had immediate implications for profitability. This may have lead to two interesting situations, in which it appears more junior employees were better informed about the project than senior management, perhaps because the implications of delay for so serious for profitability that information was not eagerly shared, note than around this time senior management was making statements that the project was on track:

• Firstly, a whistleblower within the accounting department claimed to know of project delays months before they were disclosed.
• Secondly, in the UK it was possible to place bets on potential delays on the project. These bets were stopped after the observation of “men in hard hats placing big bets in the Wembley area”.

It is also interesting that after the reviews were disclosed, management then instituted a “peer review” process to better assess the performance of in flight projects.

Trust, Drugs and Scope Changes

As with any project, there are many factors at play.

After the first delays, the sponsor and contractor became less willing to conduct work in parallel due to mistrust of completion dates, this may have added a few months to completion, but in the context of years of delay doesn’t appear to be a primary factor. It is interesting though that on delayed projects, further delays can be self-fulfilling as trust in the critical path diminishes.

There was press speculation that workers on site were using drugs. This claim is hard to substantiate and was never proven.

There were some scope changes, though again, it appears that the construction of the arch (part of the initial design) was a key factor in the delay. Unlike other projects such as the FBI’s Virtual Case File where scope change was a key contributor to delay.

Conclusions

Fundamentally, when attempting a unique work item, such as a novel load bearing steel arch as fundamental part of a stadium, it is very hard to estimate cost and duration with precision. Awarding the work via a bidding process with a fixed price contract exacerbates this problem, because the winning bid will be more likely to underestimate the required work due to the winner’s curse. In addition, it appears information flow could have been improved on this project – if junior employees were aware of potential delays and senior management was not, information was clearly not being shared effectively.

You can see more of these sort of case studies at www.projectcasestudies.com or follow me on Twitter here for blog updates, or consider reading my book.

Arch Detail - Jesse Loughborough (via Flickr)

Book Review – Decision Points

Decision Points is the memoirs of former President George Bush, it’s topped the nonfiction best sellers for the past couple of months. The memoirs aim to be decision-based rather than chronological, so each chapter focuses on a particular decision, though there isn’t any real analysis of decision making processes, just the context around each decision on a standalone basis.

It doesn’t just cover the Presidency, arguably the coverage of his earlier life is more interesting, mainly because there is little new information in the coverage of most of the more recent events. It is clear what a central role faith and strong personal relationships play in George Bush’s thinking – for example his dismissal of Gerhard Schroeder, the German leader who backed down from supporting him on a decision, is pretty cutting by the polite standards of these sorts of recent political memoirs.

As you might expect, the analysis of his decisions tends toward the defensive though, on Katrina, he accepts the need for a quicker reaction but also wanted to respect the autonomy of the New Orleans authorities, he accepts he misread Putin, but beyond that there’s not much deep thinking and reflection going on, though it’s a crisp summary of his years in office. I was hoping the book would serve a transition from the partisan politics of being President into a richer, more historical analysis of 8 years of American history but the book doesn’t really do that. This is one where unless you have a deep interest in US politics, I’d either skip completely or wait for the paperback.

Five Steps To Better Meetings

Communication is critical for project success, but meetings often aren’t. Here are a few steps for making your project meetings better.

Hold Less Meetings – If people are in meetings, then no real work is getting done. However, meetings will seldom end early, people will always find topics to discuss. Therefore, be conscious of cancelling meetings without a clear purpose and being judicious with invitees. In practice, many people attend meetings because it’s the only way to find out what’s happening – providing clear summaries via email or online can eliminate this.

Circulate Materials In Advance – if a document is going to be reviewed, share it in advance. You will likely get better, more targeted feedback. Also, if attendees have a chance to form views independently, then the quality of feedback will be improved, if people hear other’s feedback before forming their own views (as is likely to happen if they’ve only just reviewed the document) then groupthink is more likely.

Make Next Steps Clear – Nothing is more ambiguous than multiple people’s recollections of a meeting. Ensure that next steps are specified with exactly one accountable person, the action they need to take and when they are expected to do it. Ensure that the accountable party agrees to next steps in the meeting.

Determine The Purpose Of The Meeting and Make It Clear – meetings can be held for lots of reasons, but if one attendee thinks they are in a brainstorming session and another thinks they are in a decision meeting, then the meeting will not go well. Make the meeting goal and roles of attendees clear.

Finish Early – If you meeting has met its purpose. End it. There’s no need to carry on a meeting just to fill the space. Some people hold meetings with all attendees standing up for this reason, if everyone’s standing up, then the chance of anyone wanting to drag out the meeting are slim.