Title: Managing Risks in Complex Projects (fee or subscription required)
Authors: Hans Thamhain (Bentley University)
Publisher: Project Management Journal, vol. 44, no. 2
Date Published: April 2013
Risks crop up throughout a project’s life cycle. They affect cost, financial performance, scheduling, technical feasibility, and a range of other factors. The impact of the unanticipated is usually greatest in complex projects, which may entail wide-ranging collaboration and delicately timed market rollouts. This study found, however, that managers are too focused on fixing problems after they’ve already occurred, and they largely ignore the root causes of risk, which, if allowed to fester, can deeply damage or even derail a complex project.
Most companies already possess the tools to head off numerous sources of risk before they become a problem, the author writes, but they tend to apply the likes of performance monitoring, early warning systems, contingency plans, and computer-aided simulations to other phases of the project development cycle while ignoring their value in risk management. (See the related blog post, “Nine Ways to Avoid Project Meltdowns.”)
The author collected data from 2008 through 2011 on 35 major projects at 17 multinational Fortune 1000 firms. The projects, including product launches and service initiatives in the airline, automotive, computer, financial-services, information systems, and pharmaceutical industries, were varied.
Given the layered nature of complex initiatives—including their emphasis on cross-departmental collaboration and teamwork, and the need to manage shifting resources and customer preferences—the author used an “action research” method to analyze decision making, management systems, organizational dynamics, and workflow.
Pre-interviews with managers not involved in the 35 studied projects allowed the author to identify more than 600 situations and conditions that could have an impact on performance. He grouped these into 14 categories of risk. One category encompassed situations in which a company’s uneven focus affected a project’s resources, schedule, or support. Other categories included legal issues, technical difficulties, and shifting relationships with contractors or suppliers.
In the survey phase of the study, the author queried 35 team leaders, 36 senior managers, and hundreds of project team members, including engineers, scientists, and technicians, in addition to R&D directors, marketers, and vice presidents. Participants were asked to assess the frequency and impact of each type of risk, as well as the typical managerial response. The answers were coded to differentiate attitudes and reactions at varying levels of the firm.
On average, project leaders pinpointed between six and seven unanticipated contingencies that occurred at least once over the project life cycle. But the findings underscored the fact that not all risks are equal. For example, although project managers said that they lost or changed team members in 38 percent of their initiatives, only 13 percent of these projects faced major performance problems, and 60 percent encountered no troubles at all.
However, most of the 13 other risk categories exacted a damaging toll on performance. On average, 61 percent of the risks identified across the 35 projects caused considerable or major negative impacts. The three most frequently reported contingencies, all of which affected at least 70 percent of the projects, were also the most detrimental. These cases involved changing project requirements (a need arose for additional resources or professional expertise, for instance, or a shorter deadline or a wider scope); shifting market and customer preferences (for example, a competitor began staking out a new foothold or a client suddenly went bankrupt); and communication issues (including insufficient planning, weak leadership, and the lack of effective dialogue between different levels of the project team).
The author notes that although all of the projects experienced about the same number of risks across the 14 categories, some projects suffered much more dramatically than others (12 percent of the initiatives failed). To explain this, the author suggests that the ability to overcome threatening contingencies depends to a large degree on a company’s culture and environment, project leadership style, and support for new initiatives. The findings also underscored the “people” aspect of risk management. “The attitude and sensitivity of team members toward early warning signs and (initial) effects is critically important,” the author writes.