Packer was spending 20 percent on R&D, and only a small percentage of the projects that started out in the conceptual phase ever reached the commercialization phase, where Packer could expect to recover its R&D costs.
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BACKGROUND
The rapid growth of the telecom industry made it apparent to Packer’s executives that risk management must be performed on all development projects. If Packer were late in the introduction of a new product, then market share would be lost. Furthermore, Packer could lose valuable opportunities to “partner” with other companies if Packer were regarded as being behind the learning curve with regard to new product development. Another problem facing Packer was the amount of money being committed to R&D. Typical companies spend 8 to 10 percent of earnings on R&D, whereas in the telecom industry, the number may be as high as 15 to 18 percent. Packer was spending 20 percent on R&D, and only a small percentage of the projects that started out in the conceptual phase ever reached the commercialization phase, where Packer could expect to recover its R&D costs. Management attributed the problem to a lack of effective risk management.
THE MEETING
PM: “I have spent a great deal of time trying to benchmark best practices in risk management. I was amazed to find that most companies are in the same boat as us, with very little knowledge in risk management. From the limited results I have found from other companies, I have been able to develop a risk management template for us to use.”
Sponsor: “I’ve read over your report and looked at your templates. You have words and expressions in the templates that we don’t use here at Packer. This concerns me greatly. Do we have to change the way we manage projects to use these templates? Are we expected to make major changes to our existing project management methodology?”
PM: “I was hoping we could use these templates in their existing format. If the other companies are using these templates, then we should also. These templates also have the same probability distributions that other companies are using. I consider these facts equivalent to a validation of the templates.”
Sponsor: “Shouldn’t the templates be tailored to our methodology for managing projects and our life cycle phases? These templates may have undergone validation, but not at Packer. The probability distributions are also based upon someone else’s history, not our history. I cannot see anything in your report that talks about the justification of the probabilities.
“The final problem I have is that the templates are based upon history. It is my understanding that risk management should be forward looking, with an attempt at predicting the possible future outcomes. I cannot see any of this in your templates.”
PM: “I understand your concerns, but I don’t believe they are a problem. I would prefer to use the next project as a ‘breakthrough project’ using these templates. This will give us a good basis to validate the templates.”
Sponsor: “I will need to think about your request. I am not sure that we can use these templates without some type of risk management training for our employees.”
Can templates be transferred from one company to another, or should tailoring be mandatory?
Templates, whether they’re for risk management or any other purpose, serve as guiding tools that reflect certain practices or methodologies. While it is possible for these templates to be transferred from one company to another, especially if they incorporate industry best practices, there are several considerations that companies need to account for. Every company is unique with its own set of processes, culture, terminologies, and methodologies. This uniqueness means that a template perfectly tailored for one company might not fit another without some modifications.
One of the primary risks of directly transferring a template without adjustments is the “one size fits all” trap. Such an approach can lead to significant oversights. For instance, the risks, opportunities, and challenges faced by one company might vary greatly from another. By using an unmodified template, a company might miss out on addressing specific risks inherent to its operations.
Furthermore, templates, especially those for risk management, often rely on historical data. If a template is based on the history of another company, it might not accurately reflect the realities and specific risks of the receiving company. Using such unadjusted data could potentially lead to misguided decisions.
Additionally, introducing new templates can be a complex process. If a template contains unfamiliar terminologies or practices, it might cause confusion among employees. To ensure smooth integration, training might be necessary. Employees need to understand not just the template itself but also the underlying principles of risk management that the template is supposed to encapsulate.
How do you validate a risk management template?
Validating a risk management template, especially in the context provided about Packer, is a complex process that demands a deep comprehension of the company’s specific needs and challenges. Initially, one must delve deep into the specific requirements and nuances of the company. This entails grasping the typical risks Packer confronts, the ingrained corporate culture, and the language commonly used within its workforce. Simultaneously, a robust analysis of historical data from past projects and risks encountered by Packer should be conducted. This helps in calibrating the risk management template to align with Packer’s historical experiences and challenges. Engaging with internal stakeholders, particularly those with hands-on experience in project management or prior risk assessments, can offer pivotal insights that can aid in refining the template further.
To effectively assess the template’s practicality, a pilot test on a select project, possibly a “breakthrough project” as the PM suggested, can be invaluable. The insights garnered from this real-world test can highlight any gaps, inefficiencies, or areas of improvement in the template. Furthermore, a feedback mechanism post this pilot phase will provide firsthand accounts of the template’s usability and any challenges faced during its deployment.
While it’s beneficial that the template might have its roots in another company’s risk management model, benchmarking it against broader industry standards or best practices can shed light on its comprehensiveness and relevance. This doesn’t necessarily mean that the template should mirror industry norms, but understanding its positioning in the broader risk management landscape is essential.
Before a company-wide roll-out, conducting specialized training sessions where employees can familiarize themselves with the template is crucial. These sessions can also incorporate simulated risk scenarios to test the template’s robustness and to ensure it effectively aids in risk identification, assessment, and management. The risk landscape is ever-evolving, necessitating a continuous review of the template to ensure it remains updated and relevant. Setting clear evaluation metrics, like risk mitigation success rates or accuracy of predictions, can guide this review process. Lastly, obtaining buy-in from primary stakeholders and decision-makers is paramount. Their endorsement and understanding of the validation process can be a cornerstone for the successful integration and longevity of the risk management template in the organization.
Should a risk management template be forward looking?
A risk management template should unquestionably adopt a forward-looking perspective. Risks, by their very essence, pertain to future uncertainties. While gleaning insights from historical data offers valuable context, the primary objective is to foresee and prepare for potential challenges or disruptions looming on the horizon. The ever-changing nature of today’s business climate, coupled with ever-evolving technological landscapes and societal shifts, mandates a proactive approach to risk. Being forward-looking ensures that organizations are not just anchored in past experiences but are agile and prepared for approaching changes. This proactive stance, as opposed to a reactive one, enables organizations to spot and address risks well before they materialize, offering a strategic edge. Furthermore, aligning risk management with forward-looking views align seamlessly with an organization’s strategic planning, facilitating the early identification of potential hurdles and the crafting of strategies to navigate them. By anticipating risks, organizations can judiciously allocate their resources—be it time, finances, or manpower—optimizing preparedness for future challenges. Stakeholders, be they investors, collaborators, or clientele, consistently place higher trust in organizations that showcase anticipatory risk management, viewing it as a hallmark of preparedness and sharp-witted planning. Lastly, a future-oriented approach acts as a catalyst for perpetual refinement, pushing organizations to continuously refine their risk assessments, methodologies, and mitigation tactics. In essence, while it’s prudent to learn from the past, risk management’s true power lies in its capacity to gaze ahead, ensuring resilience and readiness against the uncertainties of tomorrow.
Can employees begin using a risk management template without some form of specialized training?
While employees could technically dive into using a risk management template without specialized training, this approach might be counterproductive in the long run. Risk management templates often encompass specific terminologies and methodologies that might not be instinctively grasped by all. Without a foundational understanding, there’s room for misinterpretation and misuse. Beyond mere familiarity, consistency in application is pivotal for risk management’s effectiveness. Training acts as a leveling field, ensuring that employees across various projects and departments adhere to a unified method, yielding consistent and comparable outcomes. Beyond the mechanics of filling out a template, comprehending the underlying principles and concepts enhances its effectiveness. When employees understand the broader context, they’re better equipped to capture relevant data and appreciate its significance.
Moreover, risk management is an iterative process – it’s not just about identifying risks but also strategizing on prioritization and mitigation. Training provides the necessary toolkit for these nuanced aspects. An added advantage is the feedback mechanism: a trained eye is more adept at suggesting improvements to the template or process, fostering continuous refinement. Furthermore, with training, employees can confidently integrate the risk management template with the company’s existing workflows, ensuring a seamless transition. And, of course, there’s the element of confidence – when employees are trained and understand the process, they’re more assured in their risk assessments, leading to more informed and effective decision-making.
In essence, bypassing training might seem convenient, but the long-term benefits of equipping employees with the right knowledge and skills far outweigh the initial time investment.
This case, and questions, is take from the book “Project Management Case Studies – Sixth Edition” – 2022, by Harold Kerzner.
