By David Shaffer, Business Advisor & Executive Coach, David Shaffer Consulting LLC
Over the past 20 plus years of working with clients in multiple industries, a common concern at the executive level repeatedly finds its way into discussions. How do we manage risk while striving to push our organization to maximize its performance and at the same time assure there is no significant impact in customer service and quality? Interestingly, this is a similar question that is addressed by the investment firm as it evaluates a target company or as it considers additional investment into an existing portfolio company. This question is greatly magnified when looking at service industries where the “deliverable” is tied to milestone completion rather than the delivery of a specific product.
In an industry, such as just described, where the inventory is in essence service hours, the use of a reliable approach to project management is essential. From an executive or management perspective, the challenge in managing and minimizing risk is having available critical information particularly as related to:
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Effective Budget Management
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Resource Allocation and Utilization
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Change control management (Scope Management)
These elements are equally important when managing risk whether the project has a long or short duration and whether the budget is considered considerable or tight. In fact, in either case, the delivery of services needs to be consistent with what was proposed initially. With poor management and a lack of risk control, profit margins can quickly be absorbed, resulting in uncomfortable conversations with clients, quality issues and lost future opportunities.
When companies are small and resources are limited, the proverbial scheduling board will quickly highlight resource availability and conversely resource constraints. Weekly internal staff meetings, given a limited number of projects, generally suffice in addressing risk and actions required. As a company grows, this communication becomes more challenging and the company needs to explore the utilization of technology and planning solutions to replace what could turn into a rapid growth in personnel infrastructure.
The formalization and implementation of a project management process and a supporting department provides the framework for providing the executive/management information necessary to mitigate risk.
Project Risk Management (PRM)
The Project Management Institute identifies that quality delivery, particularly in a service environment, requires effective Project Risk Management. As such, PRM is a process for planning, identifying, analyzing, communicating, managing and responding appropriately through all phases or tasks associated with project delivery. At the core of the PRM is the implementation of an overall project plan that correlates directly to the tasks and milestones established with the client of the service organization and as outlined in the scope of services proposed and accepted. By managing the project plan proactive information can be produced that highlights potential areas of risk defined by such areas as variances in budgets, timelines and milestone attainments. There are multiple software tools available to support the process of PRM such as Microsoft Project and Primavera. These are two of the more common and certainly there are numerous others, many of which come as part of an integrated software solution. It is however important to emphasize any of these tools, including the most basic use of programs like Excel, are ineffective without establishing the appropriate procedures and policies necessary to report activities in a timely and accurate manner. The prime output of the PRM and the utilization of the project plan is a Risk Register frequently maintained in a spreadsheet format. It contains a prioritized list of identified risks, the results of a quantitative and qualitative risk analysis based upon agreed to tolerance calculations in the schedule and budget, which project team member has responsibility for addressing the risk and an agreed upon strategy for mitigation or elimination of the risk.
As a company lays out its PRM process and the implementation of the project plan, the following are elements that need to be considered to assure effectiveness of the process:
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Risk Management Planning – what is the nature of the project plan, key tasks, milestones, timeframes, budgets and resource requirements
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Risk Identification – what characteristics should be identified that are leading indicators of potential risk (e.g. % of work complete versus % of budget utilized)
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Quantitative Analysis – defining performance indicators that are weighed against probability of occurrence
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Qualitative Analysis – Are the appropriate QC/QA processes integrated to the project plan and appropriate corrective action defined
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Risk Response – What are the acceptable action items to address risk
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Risk Monitoring – Implementing a tracking system that assures managing in and out of scope work and the risk presented to the deliverable commitments
Summary
Managing risk is essential to delivering service-based projects on-time, within budget and within the scope of the agreed upon deliverables. Internal risks such as budget, cost, resource and schedule require continuous monitoring and management. Similarly, external actions directed by either the client or sub-contractors are equally important and represent risk that could either result in profitable change management or conversely diminishing profitability as a result of poor task management or non-recoverable out of scope work.
Project Management, an effective PRM and a well-defined project plan are all components that collectively help minimize risk through early identification and appropriate corrective processes.
Written by David Shaffer, Partner and Director Consulting Services, David Shaffer Consulting LLC Recognized for his ability to effectively integrate all aspects of business including financial management, information systems, infrastructure, sales management, sales strategies and operations. David assists companies from executive strategic planning through operational and business process improvement opportunities to the selection and integration of Management Information Systems solutions. He also supports Private Equity firms in due diligence activities extending from strategic planning into leadership development and CEO mentoring. His range of company support includes start up through fortune 500.
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