In the course of this time of economic crisis it has turn out to be a lot more crucial to review risks and contingency plans. Far more than ever I hear of organizations developing risk plans. In the fourth edition of the PMBOK, risk will be the largest section of the nine understanding areas.
A lot of businesses that were risk takers are now becoming risk adverse. As a result we have noticed far more projects cut resulting in enormous lay-offs, high unemployment rates and organizations writing off millions in bad debt. This has developed a a lot distinct landscape inside the location of project risk management for a lot of project managers. Admittedly there have been a number of industries; monetary, avionics, healthcare, etc.; that have always paid close attention to risk. However most organizations involved in non-financial or non-life threatening activities undoubtedly gave a a lot lower priority to risk management within the past.
When the economy was peaking and companies had been thriving most organizations did not take adequate time to review risk. At the time they had been too busy attempting to find the resources to support the hundreds or thousands of projects that they had running. They did not need to waste the time of these valuable resources reviewing risk. As a result a lot of project continued to execute regardless of the fact that they had been doomed to fail financially or would in no way even deliver the product or service intended. Vampire-like projects lived on long beyond their years surviving on the wealthy blood of the corporation.
Nowadays project managers have much more experience with risk management. The piece that may be missing is the connection of risk with contingency funding. You can find straightforward formulae to calculate contingency requirements when risk is defined in terms of monetary impact. The tough component is often determining that monetary impact. To put this in to project management terms this contingency funding may be thought of in terms of reserves. These reserves must be planned into every project.
While we are getting far better at delivering near to our budgets, most projects still tend to spend over the original budget. This spending will be the result of risk events that take place during a project. These occur on almost each and every project whether or not we plan for them or not. Too frequently we try to fool ourselves into thinking that we have done such an excellent job planning that there is nothing that may put us over budget. However projects continue to run over budget.
Rarely are preparing reserves budgeted at the project level employing a systematic approach. The reality, in most instances, is that the executive management team anticipates over spending and merely builds that into the bigger budget or is just conscious that these budget overruns could happen. For the project manager this make is far more difficult to acquire these reserves for their projects and they risk, or at the least fear, career advancement by asking for additional funding.
But as a project manager you need to be bold and conscious of how the game is becoming played. Let it be no secret that further funding is always available to probably the most critical projects. Let those executives know that what you are asking for ought to have been kept in reserve from the commence. Take it one step farther and at the start of you project make it clear that a reserve quantity should be accessible to the project. Every person knows this is the reality. Don’t let them kid you.