Riskiness as a viewpoint for categorizing projects

Professor Kalle Kähkönen
Tampere University of Technology, Finland:

Understanding of the overall risk level of a project is important from several aspects. It can provide background information of significance for different decision-making needs. For example, in the early stages of a bidding process, a company must make bid preparation decisions. This is often done by comparing and contrasting different options.

Look at the following figure. It presents the estimates of overall risk levels of three different project options. With respect to their overall risk levels, our possible reasoning is illustrated by certain animals, whose characteristics are associated with the overall risk estimates. The “Ant” project is equipped with risks that seemingly can only cause minor disturbing and insignificant impact. The “T-Rex” project is rife with possibilities for a catastrophic problem, but its occurrence is unlikely. The “Lion” project is the most serious one, since likelihood of a disturbingly severe problems is high.

Risk categories

Figure: Visualizing the overall risk level of three different project options.

Generally, this approach of categorization of projects based on their qualities is beneficial.  Often, we tend to use the word “project” in too loose a manner, blurring the focus of our intent. Thus, it can be difficult to properly articulate and communicate the characteristics and qualities of each project in question. Unfortunately, the project management textbooks and standards generally omit the categorizations of projects, despite the apparent benefits of such categorization.

Therefore, I encourage everyone interested in top-quality risk management solutions to focus on project categorizations, based on each project’s riskiness. Such categories can provide vital structuring of data for communication and further decision-making. This can be of significance particularly for project portfolio management, where the manager constantly needs to understand the positions and priorities of projects.

2 Comments

  1. Interesting post, I absolutely enjoyed your T-Rex / Ant / Lion example. I am somehow missing the time perspective of your approach. For example, a strategy that is Anty-like in the short term might be associated with a high probability to go to T-Rex in the long term. Think for example about investing in a company which has great liquidity and good profits now but high exposure to carbon or other form of polution. Maybe in this sense you will find my post about risk management and sustainable investment interesting.

  2. John Andrew Kossey 2012/03/26 at 21:15 - Reply

    May I suggest that you augment your three memorable images with a fourth category:
                        wolf in sheep's clothing
    The "wolf in sheep's clothing" metaphor pinpoints portfolio projects that may produce unintended consequences or undesirable outcomes:
    * Employee burnout
    * Resignation of critical employees
    * Poor morale across organization
    * Upset or disgruntled stakeholders, such as voters in a political constituency
    * Negative impact on concurrent or planned projects, such as scarce-resource hogging
    * Unidentified risks that the project charter fails to consder to anticipate
    * Excessive zeal, passion, and priority from stakeholders and PM for a given project
     
    For completeness, we might use at least one additional image for categorizing a postive-value project: with low/acceptable risk:
            two open, outreached palms in close proximity
    I welcome your comments and criticisms.
    –John
     

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