Risky Business
HOW TO MANAGE RISK WHEN THE CUSTOMER DOESN’T WANT TO
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TWO BASIC APPROACHES
Hope Intentionality
ROLE PLAY
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The Project Manager The client/customer – reluctant to
“waste” money, time, and effort on Risk Management
CONSIDER THE RISKS
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2001 - 2008 34,000+ motorcyclists killed 1.2 million treated at Emergency Rooms
2010 4,502 motorcyclists killed Highest rates were among 20 – 24 year
olds followed by 25 – 29 year olds
CONSIDER THE RISKS
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Motorcycle crash related injury and death totaled $12 Billion in 1 year in medical care costs and productivity losses
Estimated annual costs saved from helmet use (medical, productivity) almost $400M in California
CONSIDER THE RISKS
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Helmets estimated to prevent 37% of crash deaths of motorcycle riders and 41% of crash deaths of passengers
CONSIDER THE RISKS
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Everything we do has risks Everything has potential payoffs We decide what is “worth it” Flight to Helena
Risk of delay, crash, lost luggage Payoff in time and convenience
PAYOFF FOR RIDING MOTORCYCLE?
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Reduced fuel costs Easier parking Fun Closer to nature Feels good Looks good
RISKS OF RIDING MOTORCYCLE?
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Crashes (2% of vehicles on road but motorcycles make up 10% of crashes)
Injury (8 times more likely to be injured in a crash than in a car)
Death (35 per 100M miles versus 1.7 in car)
37% of motorcycle fatalities involve speeding compared to 23% for cars
MANAGING RISK
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Situation Your 20 year old is planning to attend
college out of state Also planning to get/ride a motorcycle
MANAGING RISK
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What could you do to manage risk? Talk them out of riding motorcycle Buy them nice safe car Educate them Buy them helmet and other PPE Send them to a state with helmet laws Buy insurance (comp, liability, medical)
MANAGING RISK TERMINOLOGY
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What could you do to manage risk? (A) Talk them out of riding motorcycle (A) Buy them nice safe car (M) Educate them (M) Buy them helmet and other PPE (M) Send them to a state with helmet
laws (T) Buy insurance (comp, liability,
medical)
COST OF MANAGING RISK?
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What were the costs for risk management related to your 20 year old’s life? Price of a safe car Cost of helmet and other PPE Higher tuition rates Insurance premiums Time invested evaluating/purchasing
Was it worth it?
COST OF MANAGING RISK?
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Risk Management Planning is like buying insurance; you don’t want to have to use it, but if you need it you’re glad you did
Recognizes uncertainty and provides forecasts of possible outcomes
RM LIKE WEARING A HELMET
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There are 3 ways to look at it: If I crash, I’ll be glad I spent the time
and money If I don’t crash, I could view it as
wasted time and money and an inconvenience
Or, I could view it as time and money well spent because even though I may not have needed it this time, I might next time…
RISK MANAGEMENT
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Everything we do involves risk of some kind
No company can make a profit or achieve its objectives without taking risks
“The person who risks nothing, does nothing,
has nothing, and is nothing.”
Janet Rand
RISK MANAGEMENT
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Given that we will take risks, the only questions are:
Will we stick our heads in the sand and hope for the best? OrWill we intentionally manage them and cause the best outcome possible?
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MANAGING RISK
The same payoffs and risks exist regardless of the approach we take.Shall we influence the outcome or just wait and see what happens?
Do we want to manage them or let them manage us?
BENEFITS
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Benefits of planning for risk events: Produces better business results
through more informed decision making Improves cost and schedule estimating Contributes to project success Positive influence on creative thinking,
innovation, and team building Helps senior management understand
what’s happening with the project and challenges it faces
RECOMMENDATION
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Look at the various risk types including: Financial, product, intellectual property, liability, quality, customers, employees, personal injury, etc.
Consider possible risk responses including:Avoid, mitigate, transfer, and accept (active or passive)
Consider the possible opportunities to exploit
Document the decisions and review them at agreed upon frequencies
END OF ROLE PLAY
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Unpacking the Role Play What worked well for me was… What would have worked better for me
was…
REFRAME THE OPTIONS
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From: Whether or not to perform risk management activities (yes/no)To: Since we are taking risks, how shall we manage them and how much effort shall we expend? (what/how much)
MAKING SURE RISK ADDRESSED
Take these five steps to ensure risk is addressed:
1. Begin with mindset that you will address risks, it’s just a matter of how much effort is expended
2. Educate customer/client on the continuum of RM planning (reframe – what/how much)
3. Be prepared with 2 short personal examples (1 bad outcome, 1 good outcome) of RM planning
4. Show how easy and pain free managing risk can be
5. Show the potential benefits (of project specific RMP) on ongoing operations
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#1 BEGINNING WITH RIGHT MINDSET
E + R = OEvent + Response = Outcome
If you don’t like the outcome you can: Complain about or blame the Event
OR Change your Response to the Event
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#1 BEGINNING WITH RIGHT MINDSET (CONT.)
Start with the right mental attitude Knowing you can cash a check (good) Knowing insurance won’t cover the
damage (not so good)
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#2 EDUCATE AND REFRAME
Due Diligence The care that a reasonable person
exercises to avoid harm to other persons or their property
Research and analysis of a company or organization done in preparation for a business transaction (as a corporate merger or purchase of securities)
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#2 EDUCATE AND REFRAME (CONT.)
We will be taking risks, what steps and how much effort shall we expend?
A Little A Lot
Little: Cross the streetLot: Start up a nuclear facility
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#2 EDUCATE AND REFRAME (CONT.)
Cross the street – minimal effort done in head Risks include
Busy – odds of being hit Police – odds of being caught Setting bad example – odds of somebody
seeing me Payoffs include
Avoid 30 yard walk to corner and back Avoid waiting for the light
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#2 EDUCATE AND REFRAME (CONT.)
Start up nuclear facility – significant effort that may include: Facilitated meetings, development of Risk
Register, qualitative and quantitative analyses, risk response planning, monitor and control risk
Engineered barriers, passive safety systems, active safety systems, administrative controls, minimum staffing levels, response times, preventive maintenance programs, safety class and safety significant systems, items important to safety classifications, etc.
Note: In 2010 70,000 pedestrians injured and 4,280 were killed
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#3 TWO SHORT PERSONAL STORIES
One example of poor risk management planning outcome Modified Core Sample System (MCSS)
project ($3M one year project) Initial high level RMP as part of $325M risk
assessment Only revisited once in 3 years Significant changes in execution and
acquisition strategies made during project without evaluating risks and opportunities
Completed at $11M+ and 3 yearswww.SteveNortonPMP.com 30
#3 TWO SHORT PERSONAL STORIES
One example of adequate risk management planning outcome Slightly Irradiated Fuel Interim Storage
Project ($25M 18 month fast track project) Two 3-hour initial facilitated risk and opportunities meetings
with project team and stakeholders Approximately 30 risks and opportunities identified,
quantified, addressed and tracked (quarterly) Many risks were realized and planned responses taken Completed on budget and schedule, won local Project of the
Year AwardNote: Approximately $65K/workday average project burn ratewww.SteveNortonPMP.com 31
PERSONAL STORY OUTLINE
Title and size of project Summary of scope What RMP was done for the project? How did that affect the project
outcome? What message should be taken from
this?
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#4 MANAGING RISK DOESN’T NEED TO BE HARD
Be prepared to use a graded approach e.g. tailored to the project
Low end could start with key team members and stakeholders for one – two hours
High end should employ professional analysts and computer simulations
Crawford Slip Method (CSM) simple but useful tool to identify risks
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CRAWFORD SLIP METHOD
1. Explain the process (see handout)2. Define the terms3. Lay the ground rules4. Pass out supplies5. Ask the question (10 times at 1
minute intervals)Q: “What risk is associated with…?”A: “X may happen and will result in Y”
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CRAWFORD SLIP METHOD
6. Evaluate answersProbability (H/M/L – likely, occasionally,
not likely)Impact (H/M/L – 50% +/-, 20-50% +/-,
<20% +/-)7. Arrange responses in like groups8. Name the categories9. Identify next steps for building risk
register and risk response planningwww.SteveNortonPMP.com 35
#5 POTENTIAL BENEFITS TO ONGOING OPERATIONS
Some unused risk mitigation (e.g. spare parts or backup systems) can be moved into operations
Evaluating project risks sometimes uncovers systemic organizational problems
Going through the process helps those involved to see risks and opportunities in other areas
Process can enhance team building www.SteveNortonPMP.com 36
SUMMARYTake these five steps to ensure risk is addressed:
1. Begin with mindset that you will address risks, it’s just a matter of how much effort is expended
2. Educate customer/client on the continuum of RM planning (reframe – what/how much)
3. Be prepared with 2 short personal examples (1 bad outcome, 1 good outcome) of RM planning
4. Show how easy and pain free managing risk can be
5. Show the potential benefits (of project specific RMP) on ongoing operations
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SUMMARY
Additional steps that can be taken to make sure risk is addressed when the client and/or stakeholders don’t want to invest in it include…
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CONTACT INFORMATION
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Steve Norton, PMP, MSPM
509-430-1690Steve@SteveNortonPM
P.com
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