Risk & Decision Making

Risk & Decision Making

It is an uncertain time.  Uncertainty can translate very easily into risks.  How does your organization respond to risk?  An organization’s ability to take “smart” risks is directly related to the amount of information known and the ability to make good decisions.  Project management practices can help on both counts.   

The first point to keep in mind is that there is always risk.   It is unavoidable.   However, some risks are worth taking whiles others are not.  In every situation there is an opportunity or benefit but there is also a potential downside or risk.  When the opportunity is greater than the risk, people are willing to say yes.  However, if the perceived risk is greater than the potential opportunity then people tend to say no.  The decision should be based on facts and not on perception.  It becomes clear that without a systematic approach to identify and quantify both the opportunity as well as the risk, decision making is faulty.

 Especially during this economic climate, can your organization risk poor decision making?  Poor decision making cost companies millions of dollars each year.   Please note that we are separating poor decision making from poor decisions.  Hindsight is always clear and may judge a decision to have been wrong but we can only make decisions based on the information and the quality of the information that is available at the time.

 What is the value that project management adds?  Here are some ways . . .

 Project Evaluation: Prior to the start of a project, perform a thorough assessment.  This assessment should evaluate those factors that can increase the overall risk of a project.  The perceived benefit should also be assessed to determine if it is valid.  Factors that can increase risks are:  poorly defined project scope, unreasonable deadlines and insufficient (cost) reserves.  Good project management practices specifically address each of these areas.  Before committing to a project, the organization should make every effort to evaluate its benefits and risks.

 Effective Risk Management Process: The techniques, tools and methodology associated with project risk management is robust and powerful.  Unfortunately, the consistent implementation and use of these tools and processes is not.  Effective risk management focuses on identifying, assessment and responding to risk in a proactive manner.  This result in some risks being totally averted while others are minimized.  It also reduces the likelihood of unpleasant “surprises” in the form of an unidentified risk which can be costly. 

 Eliminate Uncertainty and Risks:  The level of uncertainty in a project is directly proportional to the amount of information known.  Unknowns create uncertainty and that can translate into project risks.  Project planning addresses this by persistently digging deeper into the details of the project and identifying those areas which are unknown and uncertain and clarifying them when possible.

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