In Practice Standard for Project Risk Management the authors illustrate the structure of a quantitative risk analysis. The structure contains Risk Prioritization, Examine Interrelationships Between Risks, Collect High Quality Risk Data, Project Model, Perform Quantitative Risk Analysis, and Results. The second step in this process, examining interrelationships, can have significant impact on the risk analysis and mitigation measures employed by the project management team. This step involves mapping the identified risks in relation to other risks as well as underlying issues identified during the process. Eliyahu Goldratt spends a great deal discussing the transfer of risk across a series of dependencies with any particular development model. He discussed this phenomenon with regards to project management in his book, The Critical Chain and again in his book, The Goal with regards to production management. The interrelationships between risks are sometimes easy to spot as risks compound over a particular series of production steps. Generally later items with severe delay are those where risk was transferred across the dependencies.
The management tools Goldratt communicates in these books include his popular Theory of Constraints and Critical Chain Project Management. Both of these offer great insights that improve project management overall and contain four risk management strategies common in project management literature. These strategies are Avoid, Mitigate, Transfer and Accept. In critical chain project management the intent is to shift project risk from each individual task to an overall risk for the entire project. This forces managers within the project to look for ways to mitigate and transfer risks.
According to Adrienne Watt mitigating risk “means taking some sort of action that will cause it to do as little damage to your project as possible.” The goal is to mitigate the effects of the risk. One way critical chain project management reduces the effects of the risk is to remove risk calculations from the local managers. As mentioned above one of the major tenets of that methodology is to shift the risk from the different efforts within the project to the project as a whole. This tenet is a risk mitigation strategy. One of the other strategies explained in that book involves transferring risk. One way the book articulates this is with a project that has some of its labor contracted to others. In the book the project manager shifts the risk of late deliverables from the project itself back to the contractor under terms that are amicable to both.
In this post I’d like to discuss how estimating is one of the riskiest aspects of any project. The best book for understanding this isn’t on the reading list for my classes at UMUC, but that’s probably because it’s too engaging to be used as a text book.
The resource in question is Goldratt’s novel on the Critical Chain. In the book his characters are faced with a situation where each individual adds their own safety to their portion of the project. Added up this cumulated safety takes up more time than the project itself does. What his novel does better than anything else I’ve written is to explain how to work with actual human beings to remove as much safety from each individual line of effort and aggregate a safety for the project as a whole at the end.
Estimating is an extremely dangerous technique for managers. Organizations with a low tolerance for failure will get unrealistically long estimates from their team members. Why? Because adding in the safety to the individual’s line of effort is key to maintaining their employment status. The opposite extreme is also detrimental. At this point some pragmatist would argue that picking the point in the middle as the right course of action, and they’d be wrong as well.
Either extremes or the middle are significantly dangerous ways to run an organization when it comes to gathering estimates. The right answer is to select a zone near one of these three points that depends on organizational culture, project complexity, and individual capabilities of the team members. It’s important to pick a zone to operate within on this spectrum because as the project evolves its perception by team members will change and motivational tools (such as the value of estimates) will need to be responsive to these changes.
In conclusion estimates are dangerous to a project because people will want to give themselves as much cushion as possible. To avoid this one needs to adopt a zone of influence where there are consequences for estimates with too much safety or unrealistic deadlines. Senior leadership needs to adopt communications lines in a way to be able to understand the framework of the estimates below them. An arbitrary application of an unrealistic timeline can destroy a great deal of good faith in an existing system and cause an adverse reaction for future projects. Again, the best book to explain this isn’t on my college reading list. It’s Goldratt’s novel on the Critical Chain.
Eliyahu M. Goldratt became a master of project management through hard work and careful observation. His ideas and contributions to project management would have gone unappreciated if he wasn’t also a good communicator.
In this business novel Goldratt articulates problems typical with project management. Through careful dialogue his characters extract perspectives on solutions that help the reader not merely understand the concepts, but also how to communicate them within their sphere of influence.
This book, Critical Chain, looks at the human dimension of project management and how safe buffers added to the project timeline by individual offices do nothing to move the project along. Instead Goldratt clearly explains through his characters practical methods for shifting these buffers from the individual lines of effort to an aggregate for the project.
Every manager wanting to make their teams and processes more efficient should add this book to their reading list. It’s a clear winner designed to help teams deliver results.