For project managers, managing risks and issues is akin to steering a ship through the open ocean. There are moments of relative calm with ample time to handle each manageable risk, but at other times, when the waters are rough, each decision has the potential for unforeseen obstacles that could impede progress or even derail the entire endeavor. Understanding how to effectively navigate these risks is a critical component of successful project delivery.
Traditional risk management focuses only on assessing the impact (extent of the consequence in dollars or reputation) and likelihood (probability of occurrence) of a given event. While these two factors give executives a good idea of the severity of the risk, they do not account for how quickly the organization will have to respond should the risk occur. Protiviti believes that in today’s fast-paced environment, where speed and agility are paramount, it is no longer sufficient to merely assess the static characteristics of risks. Organizations must also estimate both the amount of time remaining to mitigate the risk and how quickly they will have to respond should the risk become an issue. Enter decision intervals and velocity. By incorporating these elements into the evaluation process, project managers can gain deeper insights into the dynamic nature of risks and issues, enabling them to proactively address potential threats before they escalate into full-blown crises.
Understanding decision intervals
Decision interval, in the context of risk management refers to the speed at which a risk is expected to materialize and potentially impact factors such as market dynamics, technological advancements, regulatory changes and stakeholder expectations, all of which can influence the pace at which risks and issues evolve.
To calculate the decision interval, project managers assign a score ranging from one to four, with one indicating a slow-moving risk or issue and four representing a rapidly escalating threat. This score is based on a combination of qualitative and quantitative factors, including historical data, expert judgment and external factors affecting the project environment. These should be reviewed on a recurring basis as the speed in which a risk is expected to materialize can change over time, shifting how the organization prioritizes mitigation planning. From a leading practice perspective, the decision interval should be such that it can provide adequate runway for potential mitigations to be put in place prior to the risk becoming an issue, causing a negative impact to project cost or schedule.
Understanding velocity
Velocity, in the context of risk management refers to the speed at which an organization must respond once a risk transitions into an issue. The velocity of a risk does not typically change and should also influence how organizations prioritize mitigation planning.
Like decision intervals, velocity is calculated utilizing a score ranging from one to four, with one indicating an item that provides ample time to respond and four indicating an item that requires an immediate response. This score should be based on both historical knowledge and expert judgement. Velocity is a key differentiator in deciding which risks have standard, pre-defined mitigation plans that are pushed out to the organization through training or project communications.
Incorporating decision intervals and velocity into risk evaluation
Once the likelihood, impact and velocity scores have been determined for each risk or issue, they are multiplied to calculate the total risk score. The decision interval is then overlayed to provide both project managers and executives with a prioritized view of program/portfolio risk. This holistic approach provides a more nuanced understanding of the overall risk landscape, allowing project managers and executives to prioritize their mitigation efforts accordingly.
For example, a risk with a high likelihood, high impact and high velocity, but a long decision interval may warrant monitoring and periodic reassessment, whereas a risk with moderate likelihood, moderate impact and low velocity, but a short decision interval may require immediate action to prevent it from having a negative effect on the overall program.
Prioritizing risk management activities
The total risk score serves as a key input for prioritizing risk management activities within the project. Risks with higher scores are given greater attention and resources, while those with lower scores may be deprioritized or managed through less intensive measures.
By moving beyond a two-dimensional view of risk, project managers can more effectively allocate resources where they are needed most, minimizing the likelihood of project delays or failures. This proactive approach not only enhances project resilience but also instills confidence among stakeholders by demonstrating foresight and responsiveness to emerging threats.
In today’s complex and volatile business environment, the ability to anticipate and mitigate risks is essential for project success. By integrating velocity and decision interval into the risk evaluation process, project managers can gain a more comprehensive understanding of the ever-changing threat landscape, enabling them to make informed decisions and take timely action to safeguard project objectives.
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