How Poor Risk Management Is Hurting You

Poor risk management is costly. Project managers are caught off guard by emerging risks. And these risks may turn into issues costing more time and money.

But, it doesn't have to be that way. We can identify risks early. We can assess and prioritize our risks, allowing us to make better use of our limited time.

poor risk management

Let's look at the cost of poor risk management through the life of Tom Whitley. We will discuss his mistakes. Lastly, I'll provide you with a simple project risk management checklist to keep you from making the same mistakes.

The Risk Management Mistakes of Tom Whitley

The Star Mutual Insurance Company (SMIC) hired Tom Whitley as a project manager to manage information technology projects. Although Tom missed a few deadlines, he implemented most of his projects, though small, on time and under budget in his first year.

Tom was promoted to program manager after only 12 months with the company. He was assigned his first SMIC program, a combination of projects aimed at helping the company achieve a consistent underwriting profit. The program included projects to implement a new imaging system, a new policy administration system, and a new claims system, each led by a different project manager.

Tom pushed the project managers to take action quickly. He wanted to see progress within two to four weeks.

When one of the project managers spoke of identifying, evaluating, and managing risks, Tom cut her short, “We’ll get to the risk management later. I want an agile approach with the minimum process.”

The senior management team praised Tom for the early action.  The imaging team had started building workflows. Check. The policy administration team started developing the interface to the claims administration system. Check. The CEO told the board of directors that things were going well for the first two months of the program (or so she thought).

In the third month, significant issues emerged. First, users were continuously changing the requirements for the policy administration system. Second, Tom started having problems with the third-party vendor resources. Third, the test regions were unstable, making it impossible for the testing teams to stay on schedule.

Tom and the project managers were spending more time dealing with issues and less time preparing for upcoming project activities. Things spiraled out of control. Eventually, SMIC replaced Tom as the program manager. The CEO reported the problems to the board and promised to get things back on track. But, it never happened.

After two years of trying to get the applications implemented, the company terminated the program and wrote off $15 million in expenses. SMIC continued missing revenue goals while expenses rose sharply. The CEO was fired after the company was downgraded twice and after four years of underwriting losses.

Learning from others...

“Human beings, who are almost unique in having the ability to learn from the experience of others, are also remarkable for their apparent disinclination to do so.” —Douglas Adams

Risk Management Mistakes

Although this is a fictitious story, many project managers (and companies) fail to use risk management as an effective means of achieving their objectives. If you were leading the next program, what would you do differently? Take note of Tom's mistakes.

  1. Tom failed to see risk management as a smarter way to plan and execute projects. Beliefs drive behavior and action. Because Tom thought that risk management was a waste of time, he failed to leverage the benefits.
  2. Tom got behind the eight ball. Risk exposure is highest as projects start. Why? Project managers have the least amount of information; therefore, uncertainty is greatest. Tom should have identified, evaluated, and responded to risks in the first few weeks of the program and continued this process throughout the program.
  3. Tom failed to take a systematic approach. Project managers are expected to show results quickly, but they should never skip planning altogether. Project managers can show progress while, at the same time, developing their project management plans.
  4. Tom failed to take a balanced risk management approach. Some project managers take unnecessary steps, wasting time; other project managers fail to do enough. Tom was successful on small projects with very little risk management. But, he skipped risk management all together in the larger, more complex program. Consequently, the negative events became material issues that harmed the company and cost Tom his job.
  5. Tom had no wiggle room. Why? Because he failed to identify risks and evaluate the risks, leading to the development of the budget and schedule reserves.
  6. Senior management undervalued project management. Rather than developing a strong project management program to support its strategic goals, senior management saw project management as a necessary evil. When management needed operational transformation, they lacked the skilled resources and framework to make it happen.
  7. The company failed to identify the operational risk of losing skilled program managers. Some companies take employees for granted, increasing the likelihood of losing skilled employees. Successful companies identify and retain the employees critical to their strategic plans. Succession plans should be developed to ensure competent resources are available if key resources leave the company.

Your Risk Management Checklist

How about you? How would you describe the health of your projects? Review one of your projects with this checklist:

  • Do you have a risk management plan (it does not have to be lengthy or complicated)?
  • Have you identified and captured your risks in a risk register?
  • How have you evaluated and prioritized your risks?
  • Have you engaged the appropriate stakeholders in the risk identification and evaluation processes?
  • What about risk owners? Does each risk have a risk owner?
  • Have the risk owners developed risk response plans for the highest risks?
  • Are you facilitating a review of your risks periodically, resulting in updates to the risk register and effective risk responses?

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