Risk management - the enabler for strategic decision making

The operating environment in which programme and project management (PPM) exists is increasingly complex. Leaders need to pro-actively manage the internal and external risks to their programmes, and master how to think and act strategically in today’s uncertain world of political, economic and environmental change.

At Moorhouse we have established four critical success factors that will enable this to happen…
 
1. Opportunity Leveraging

Forward thinking organisations aspire to maximise opportunities that come their way, off-set by the risks they are prepared to bear. This behaviour demands a capability to seek and act upon favourable circumstances…

• Step 1 Explore scenarios.
  It is important to imagine future scenarios in order to examine what situation it presents to your organisation and what opportunities it opens up. How can you proactively stay one step ahead of others – such that as soon as this scenario unfolds you can initiate your response quicker than they do?
• Step 2 Develop an ‘opportunity’ mindset.
  Programme leaders need to consider how they can encourage team members to proactively seek positive spin-offs from the programme. Are there examples that provide tangible evidence of success that can be shared with key stakeholders to generate support? Are their role models that can be championed to encourage this mentality in others? This kind of internal dialogue is vital to developing the necessary positive mindset.
• Step 3 Identify and quantify opportunities.
  It is important that an organisation is clear about the returns it expects to make on its (risk) investment. What is the balance of opportunities being sought – between the ‘hard’ (e.g. financial) and ‘soft’ (e.g. relationship development)? Are there tools and processes in place to qualify and quantify these opportunities? If yes, is there a coherent and well understood mechanism to prioritise them, and are they tracked forward to ultimate success?

2. Scenario Planning

The goal of scenario planning is to create a robust set of strategies that will work across a range of plausible future operational settings:

• Step 1 Define the environment.
  The core characteristics of your operating environment need to be understood. What elements of this ‘system’ are you able to influence? What are your information needs in relation to better understanding these key drivers and how can they be satisfied? From this point of enquiry, you can develop scenarios – or descriptions of plausible alternative operating environments. Well-crafted scenarios should draw the reader into plausible worlds often containing unfamiliar threats and opportunities.
• Step 2 Describe the effects.
  Scenarios are not ends in themselves and do not contain enduring stand-alone value - they are a tool to spur critical, strategic thinking around real potential challenges and opportunities facing an enterprise. They have planning value only when used as a complete set. It is only then, that one can be assured of managing your organisation’s future uncertainties.
• Step 3 Evaluate the threats and opportunities.
  What are the threats in each scenario and how are they likely to impact on the aspirations or outcomes of your programme? How are your competitors and stakeholder community likely to behave to differing events?  The essence of the scenario planning process is the workshop. This is where the ideas and raw material for future strategies develop. Participants “live” in their assigned world understanding the limits (risks and opportunities) of the future world and develop a plan to cater for the scenario. 
• Step 4 Determine courses of action.
  In the last major segment of the workshop, each group’s strategy set is ‘stress tested’ in the other scenario environments to evaluate its effectiveness. This is an important test of robustness. The information collected in this task will inform judgments around which strategies or strategic elements from the other groups hold the greatest potential for effectiveness – no matter how the world turns out.

The strategy synthesis is the final and most important task. A core set of high potential ‘robust’ strategies are identified, along with an initial set of implementation considerations. The implementation considerations are typically a combination of low-risk actions or preparatory steps that must precede actual execution of strategy, for instance, making ready the infrastructure prior to executing the strategy.

3. Empowering Teams, People and Partners

At the heart of effective management of risk lies the people who need to work together to make decisions - that enable them to mitigate risk yet exploit opportunities:

• Step 1 Engage your people.
  Programme and projects will operate most effectively when people are committed to the objectives. When staff members are fully engaged in planning and implementing a programme, their performance and productivity will improve. This type of culture can be developed through effective communications, the involvement of staff in problem solving situations and the training and development of individuals and teams.
• Step 2 Motivate assertive behaviours.
  Exploiting opportunity or countering risk demands positive individual and collective behavioural traits. Empowering the workforce will engender more assertive behaviours as individuals recognise their ability to operate with a high degree of freedom. The propensity for decision-making must be an appetite that is shared. In our experience, the correct risk management mindset is a critical but frequently neglected component of risk management; critical because it shapes the effectiveness of risk management; neglected because it is intangible and difficult to engender.
• Step 3 Know your partners.
  Partnering successfully, be that with internal teams or external suppliers, is an integral component of programmes. Success will often hinge on whether the resources and technical capabilities of different teams and organisations can be optimally brought to bear. Nurturing partnerships requires deliberate and overt activity – and there should be an explicit and enduring link between successful risk management and the level of reward apportionment.
• Step 4 Manage relationships.
  Contract negotiation and its subsequent management should never stifle the flexibility required to ensure successful delivery. Contract management should involve specification of risk monitoring arrangements and decision making structures such that remedial action is always taken proportionately and effectively. 

4. Timeline Analysis

In a programme environment, recognition that risk management is inherently a time-sensitive topic is crucial.  The two key components to timely decision-making are:

• Step 1 Analyse the risks – first order mapping
  Most programme practitioners will be familiar with the need to prioritise the impact and probability of risks in relation to their bearing on programme outcomes. Such an exercise will group risks into one of three categories: (1) the risk is deemed as acceptable and no action is required; (2) The risk is assessed as critical and immediate action is required to mitigate; or (3) the risk has either a high impact or probability and action must be planned to mitigate. A typical matrix for this first order mapping is shown below.

• Step 2 Analyse the risks – second order mapping
  The nature of managing a programme is dynamic and, as such, factors change over time.  One of the most important things we need to know, therefore, is when we have to do something about a risk. We need to know when the risk will start to materially impact the intended outcomes and when we need to take action to prevent it happening or to reduce its impact. A Bubble Chart is a powerful way of combining these parameters in a graphical form and producing a simple risk profile which can be understood by non-specialists and senior executives.

Using a Bubble Chart, the timing of each risk is represented on the horizontal axis against a scale of months or project stages. The criticality of each risk is represented on the vertical axis and ‘controllability’ is represented by the size of the bubble (uncontrollable=large bubble). The aim is clearly to not have large risks, with a high probability of being triggered with immediate effect i.e. no large bubbles high left on the chart. If there is such an occurrence this is by definition a ‘show-stopper’ risk and will almost certainly undermine the prime objectives of the programme or project. Therefore an acceptable risk profile is one where the bubbles are well away from the y-axis and close to the x-axis.

• Step 3 Match ‘tempo’ of response
  Match the tempo of response capability to the risk environment. In order to place your programme in an agile posture, it is critical during planning stages to define the key actors and timescales. For example, there should be clarity as to who will indicate the presence of the risk or opportunity and who is charged with making a decision as whether to act or not. Essentially the decision-making infrastructure needs to be in place such that the monitoring frequency and decision-making processes are sufficiently dynamic to match the environment portrayed in your second order mapping.

The four critical factors to successful risk management 
 

© 2008. Moorhouse Consulting Ltd

If you would like to talk to us call on the number below. Alternatively, click on the consultants email address, provide us with your details and we will call you back. We look forward to speaking to you. Contact: Email: Tel: Ian McDougall ianmcdougall@moorhouseconsulting.com +44 (0) 20 3004 4482