Which would you prefer? To respond to risks after they occur or to see the risks early and take steps to prevent or reduce your risks?
I’ll take the latter, thank you!
Project managers can get ahead of their risks by thinking differently. Rather than focusing on past performance only, consider how you can anticipate when future threats and opportunities may occur. If you do, you will stand out from other project managers.
Allow me to share an example of how this works. Imagine a father and mother who dream of their sixteen-year-old son John going to college, getting an education, and securing a job. No boomerang child here!
One way for the parents to determine a teenager’s ability to succeed is to review the child’s report card, a form of performance reporting, right? The father sees that his son has made two Ds and one F on the latest report card. The father — who is not a happy camper — puts his son on restriction for two months. Notice the reactive nature of this response.
Wouldn’t it have been better if the parents had watched real-life, real-time indicators that could have provided earlier insights?
Think about it. What are some leading indicators for a high performing student? How about time spent studying or the amount of time being tutored in Chemistry, John’s most difficult course?
Furthermore, the parents could have rewarded good study habits. And a guidance counselor could have explained the required GPAs for the top three colleges John wants to attend.
Now, let’s turn our attention to projects. Both project sponsors and project managers review summary data that provide insight into the project performance. Most status reports focus primarily on the historical information. Is the project is on schedule and budget? While the information is helpful, it may not provide early warning signals.[callout]Want to go deeper? Read Dr. David Hillson’s article Earned Value Management and Risk Management: A Practical Strategy.[/callout]
Lag indicators confirm a pattern of events is occurring. Risks may have already occurred. Consequently, it is more costly and time-consuming to respond to events after they have occurred as compared to having identified and managed the risks early.
What’s the secret? How can we pick up an early signal of increasing risk exposure and manage the events or conditions, thus reducing our cost, time, and stress? Well, I’ll give you a hint — we don’t need Superman powers to see through walls.
What we need are key risk indicators. While key performance indicators (KPIs) and key risk indicators (KRIs) are used mostly in operational and enterprise risk management, these measures can help project managers too.
So, what is a key risk indicator and how does it differ from a key performance indicator? Key risk indicators are metrics used by a project manager to provide an early signal that triggers a review, escalation, or management action (depending on your needs). Where KPIs tell us about historical performance, KRIs help us predict the occurrence of a risk. Project managers who use KRIs can be more proactive.
Susan, a project manager, looked at the scheduled activities for testing software and saw that the activities were on schedule. In other words, the testing performance had gone as Susan and the team had planned. However, she had also been watching the testing defect report which has been showing an alarming increase in the number of significant defects — a key risk indicator — in the last two weeks.
Susan predicts that the testing activities will fall behind schedule in the coming weeks unless additional testing resources are added. Furthermore, she recommends additional unit testing to discover and correct defects before the code is released for testing.
Now it’s your turn. Think about your projects. Ask yourself the following questions:
Here are some examples (Risks–>Indicator):
Define indicators for your most significant risks that can enable you to predict the future. Who knows, maybe you can be Superman or Superwoman after all!