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Published: June 14, 2013

 
 

Curbing Risks in Complicated Projects

As one marketing director interviewed for the study put it, “Our customer environment is quite dynamic. No product was ever rolled out without major change. Our best project leaders anticipate changing requirements. They set up work processes that can deal with the market dynamics.” And they use the computer-aided simulations and other early detection tools at their disposal to tamp down problems before they get out of hand.

Another revealing finding: The analysis showed that, on average, senior executives rated the performance impact of risks 30 percent lower than project managers did. Because members of the executive suite perceived less of a link between risks and project outcomes, they were more likely to hold their subordinates accountable for poor performance than unforeseeable events. Unless senior managers are willing to build a culture geared toward recognizing and handling unexpected hitches, companies could become trapped in a vicious circle of internal blame, the author noted.

Effective approaches cited in the study include simplifying the work, making it easier for employees to share their knowledge about an initiative, shortening development cycles, and testing project feasibility throughout the process. But identifying risks early can prove challenging. Because many risks stem from the larger economy or market environment, managers must work with all stakeholders to detect problems that may reside outside the firm’s internal controls. 

Finally, the author noted how risks that at first seem innocuous can “cascade, compound, and become intricately linked” if not addressed effectively by managers. For example, suppose an equipment manufacturer encounters shipping issues that could delay the delivery of a critical component five months down the road. How soon managers spot the problem and what they do about it—whether they gamble that the threat won’t materialize, decide to switch to an alternative supplier, re-plan the project, or come up with an innovative work-around—will determine whether the risk is contained or spills over into other areas, such as cash flow and future business performance.

Bottom Line:
Some types of risk pose a peskier problem than others for the success of complex projects, but the outcome of large-scale initiatives ultimately rests on how capably managers and their subordinates can detect and respond to unforeseen emergencies. Changing requirements for the project, shifting customer needs, and communication breakdowns are the most frequent and damaging types of risk.

 
 
 
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