Chartered Directors’ Review of the Year – a lesson in risk management

On Wednesday night I attended the “Review of the year” at the Institute of Directors (IOD). It is an annual event for Chartered Directors to reflect on issues/opportunities directors have faced. The theme for the event was how company boards manage risk, and in particular a crisis.

There were four presentations chaired by Dr Neville Bain, the Chairman of the IOD. One was around the policies, structure, processes and culture that organisations require for risk management – although the presentation was from a main board perspective, there was nothing here that people familiar with OGC’s Management of Risk (M_o_R) wouldn’t recognise or disagree with.

Another presentation regarded the Icelandic Volcanic Ash Cloud that caused the UK airspace to shut down in April 2010. This was delivered by Mark Swan, the Director of Airspace Policy for the UK’s Civil Aviation Authority. The task to resolve the crisis fell at his feet. What was fascinating was that the Civil Aviation Authority had identified Volcanic Ash as a risk on their risk register. The contingency plan was simple. Pilots are instructed to fly around the ash cloud. This effectively meant closing the UK airspace. The crisis that ensued was not about closing the airspace but on how to open it. What followed over the next 6 days was lots of research into what was the actual threat from the ash cloud, lots of negotiation with engine and plane manufacturers to agree what ‘safe’ levels of ash planes can fly in, the drafting of 5 new policies (which would normally take around 4 months to complete) and numerous board meetings to sign them off. The latter was particularly difficult as UK corporate manslaughter laws meant that the board of directors could be criminally liable if they got it wrong!

Although I attended as a Chartered Director, I couldn’t help thinking about it from a project/programme risk management perspective. So in Risk Management terms what they had in their risk register was

• Risk = Volcanic Ash Cloud
• Risk Response = Declare no fly zone until ash cloud dissipates

In effect what happened was

• Cause = Volcanic Ash Cloud
• Risk = Having to declare a no fly zone
• Effect = £200m impact per day on UK Plc through lost earnings
• Risk Response = agree what is safe and introduce new policies in order to get as much of air space open as possible as soon as possible

I was really impressed with Mark Swan who, as a former RAF pilot, really understands real time management of risks. He asserted that the biggest problem they had was not in managing the risk (or in our language the threat), but in dealing with uncertainty. Much of the crisis management over the six days was focused on reducing the uncertainty of (a) understanding the nature of the ash cloud and (b) knowing what the safety tolerances were for flying through the less dense parts of it. If any project managers reading this blog want to take one key lesson from this case, it is this – identifying the cause of uncertainty and working ways to make it more certain is the most effective way of managing risks on a project.

I did have a bit of an issue with Mark’s view that ‘having it on the risk register didn’t really help.’ I come across these sorts of statements quite regularly when auditing failed or failing projects. It is common for project managers and project boards to identify risks and put them on their register, determine a reasonable risk response and then sit back with the comfort that it is being managed. Wrong. I regularly find poorly articulated risks on risk registers that do not distinguish properly between the cause, the risk and the effect. You can’t actually treat the risk, but you can treat the cause or the effect. If we were to apply OGC’s Management of Risk guidance to this scenario we could also have applied some additional techniques – for example identifying proximity ratings which would have triggered an early warning indicator so that some of the risk responses could have been started early, such as negotiating with the engine manufacturers.

It is undoubted that the Civil Aviation Authority did a brilliant job in resolving the crisis once they were in it – and what seemed to save them was strong leadership and clarity of the decision-making process. Most importantly, what decisions needed to be made at what level and with what information.

The other two presentations were on the role of Public Relations when dealing with a crisis (by the BBC’s head of media relations) and the importance of good governance (by the HBOS whistle-blower). Both were fascinating and both provided food for thought for project and programme context. But that’s the topic of a later blog!

From http://www.outperform.co.uk

Austerity implications for Project Management

I recently helped organise a debate on the austerity implications for Project Management in conjunction with our friends at Team Animation.

The debate covered a number of key questions that are being asked in boardrooms across the UK. How do we give CXOs, and in particular the CFO, the comfort that value for money is being achieved from their investment in projects? How do we handle the triple pressures of increasing levels of change (hence the need for more projects and programmes), a drastic reduction in budgets (hence less overheads or fewer or smaller projects and programmes) and the need to provide greater and demonstrable value (hence the focus on benefits)?

The debate was kindly hosted by Lloyd’s Register, at their iconic Fenchurch Street headquarters in London, who gave a poignant account of the value of project management in protecting assets and saving lives (with reference to the Deepwater Horizon disaster in the Gulf of Mexico).

The debate was attended by around 35 project and programme management professionals from across the public, private and charity sectors. The majority of the attendees were people who were responsible for project/programme management within their organisation either managing or working in a Centre of Excellence, Programme/Project Management Office or a Portfolio Office. There were also a number of project/programme managers in attendance. The debate was facilitated by 4 short presentations on different aspects of the implications of austerity.

The key question we wanted to answer was “is project management a cost to be reduced, or is it an enabler for cost reduction?”

Given that turkeys do not vote for Christmas (the participants were all PPM professionals after all) there was unanimous agreement that project management is an “enabler for cost reduction”, but there was also a majority view that project management should additionally be “a cost to be reduced”.

The presentation I gave focused on the cost of project management and explored the relationship between the investment in project management (the corporate PPMM infrastructure if you like) and the cost of managing a project (the overhead on a per project basis) and the cost of project failure (the cost of re-work, unwanted outputs etc).

There was a discussion around the lack of evidence on what reasonable project management overhead should be and as a result this often requires senior executives to make a ‘leap of faith’ that investing in PPM infrastructure will reduce both project management overheads and project failure. The conclusion here was that determining the optimal cost of project management is something that organisations should be doing anyway, regardless of austerity. The austerity implication is that without the hard evidence the cut in infrastructure may be too severe and may actually result in an increase in the total cost of project management!

Given the unanimous agreement that project management is an enabler for cost reduction, the final part of the debate focused on how the PPM profession can help their organisations deal with austerity? Based on the 4 short presentations, consideration was given to:

• What are the value and cost drivers for the organisation?
• Does the portfolio need some tactical right-sizing?
• What is the optimum balance between the tolerable cost of project management and acceptable performance?
• Does the scale of change facing the organisation require better project/programme capability than already in place?
• What are the underlying cultural issues facing the adoption and effective use of project management?
• How long have you got before the option of last resort (the salami slice)?

The conclusions from the sub-groups that explored the above considerations was that those responsible for project management need to:

• understand the strategic objectives affecting decision-making in their organisation
• do stakeholder analysis of the key decision-makers to determine other ‘goals’ that project management will need to address
• understand the cost and value drivers for the organisation, i.e. what are the main contributors to cost and what are the activities/products/services that provide the most value in the eyes of the key stakeholders
• get the facts regarding how many projects are running (or are planned) and what their contribution to the strategic objectives are, their cost to completion, estimated duration and associated risks (in essence a portfolio review). Make proposals as to which ones should be cancelled, suspended, continued or indeed accelerated
• work with the senior executives to establish appropriate governance structures – using the lever that weak governance slows decision-making (and that acting quickly is critical when resolving budget deficits)
• do an options-appraisal for reducing/increasing the infrastructure costs (show the value/risk of the options against the ‘do nothing’ baseline)
• avoid silver-bullets by focusing on any one aspect of project management, but ensure that a rounded capability is in place

The general feeling seemed to be that much of what needs to be done for project management to assist an organisation with its austerity implications we should be doing any way. The real challenge is providing the structure and facts in order to avoid irrational decision-making that can surface when job insecurity, market uncertainty and time pressures combine.

At the end of the debate, the kind folks at Lloyd’s Register gave us a tour of their building, providing an historical account of how the charity was formed with the goal of saving sea-farers lives through certifying ships’ sea-worthiness. The library and committee room was particularly inspiring, both in terms of the art they contained and the functions they serve. A special thanks goes to them for their hospitality.

A copy of the slides used to facilitate the debate is available to view via slideshare.

From http://www.outperform.co.uk