Professional Documents
Culture Documents
The Business
Case For Project
Risk Management
A briefing paper for IT and
Finance Directors who are
fighting a losing battle
against runaway project
expenditure
1 http://news.bbc.co.uk/1/hi/in_pictures/7093730.stm
2 http://www.tbs-sct.gc.ca/rm-gr/arm-pgr/exfed3_e.asp
• West Coast mainline upgrade. The planned upgrade to the West Cost
Main Line at Rugby led to almost a week of disruption and a record fine
of £14M for Network Rail4. The upgrade to a 40-mile section of track
overran by four days at the end of the Christmas holiday period, but rail
operating companies and passengers received just a few hours notice,
leaving operators unable to run trains and passengers either stranded or
having to use alternative means of transport. The delays put at risk the
planned upgrades for 2008, ahead of a timetable change due to take
effect in December 2008.
3 http://news.bbc.co.uk/1/hi/uk/7322453.stm
4 http://www.rail-reg.gov.uk/server/show/ConWebDoc.9082
5 http://www.nao.org.uk/pn/05-06/05061631.htm
According to research by the Standish Group about one fifth of projects are
cancelled before completion. Even those that are completed only do so at
great expense; they run over time and over budget - what the Standish
Group called “challenged” projects6. Often, descoping features is the price
paid for delivery. However, projects that profit in the short term pay the
price later. The Department for Food and Rural Affairs (DEFRA) were
fined £36M by the European Commission for "inadequate control
procedures or non-compliance with EU rules" on farm spending7.
6 http://sdtimes.com/content/article.aspx?ArticleID=30247
7 http://news.bbc.co.uk/1/hi/uk_politics/6572687.stm
• Whether the operational costs – the cost of live running, support, etc. -
are higher than forecast. These can often be affected by late project
delivery, by de-scoping of features and by the cancellation of projects.
Your goal should always be to monitor the actual costs and to keep an eye
on the likely benefits. Risk management is essential to delivering business
benefits.
Fail to manage your project’s risks and they’ll eventually become issues.
The greater the number of issues you have to deal with, the greater the
proportion of time that gets spent dealing with them. These costs begin to
mount up. The average overrun? 89%, or nearly double the original
project cost. Control your risks before they become issues and you stand to
save about half of your eventual project cost.
If the potential costs to your company aren’t a big enough incentive, think
about the damage it will do to your company if your partners believe that
you cannot manage risk effectively.
• Your clients;
reputation for poor delivery your partners will find ways to avoid doing
business with you if they can. Instead they will go elsewhere, leaving you
struggling to find partners willing to do business with you.
For the past decade we’ve benefited from a benign economic climate. This
has been a period of sustained economic growth, easy access to finance and
low inflation. Those days are over and you now need to be ready to do
business in a harsh economic environment.
In the days of solid economic growth and easy access to financing it would
not have been acceptable to operate loose financial controls, but let’s be
honest; it probably has happened. Not any more: you can no longer afford
to spend money you don’t have and if your projects are not delivering
you’ll be wasting money you can’t afford. Every one of your projects that
runs over time and budget represents money coming straight off your
company’s bottom line. If you’re not taking steps now to manage through
the economic downturn you can bet that your competitors will be. They
will come through this period leaner, fitter and better able to do business in
the future. Will you be able to compete with them? Will your company
even survive the economic downturn?
• Estimate the potential savings both during the complete life of the
project and to your operations and support costs;
1. More realistic project plans. Once you start actively managing risks
your plans become more realistic as they now better reflect the work
you really need to do in order to deliver successfully.
8. Lower costs. Avoiding cost overruns means lower overall project and
support costs.
11. Ability to reuse unspent contingency funds. Once your projects start
completing on time you can re-use any unspent contingency funds
elsewhere in your business. This may make the difference to the
survival of other projects, which in turn means additional positive cash
flow.
12. Better client and supplier relationships. Once you involve your
clients and suppliers in your risk management planning, you’ll take
your relations to a whole new level. Together you will have a better
understanding of your respective issues, challenges and threats and
will plan ways around them together.
plans and proposals which better reflect the risk of delay. You’ll also
learn about problems that may affect your company’s ability to deliver
at an earlier stage so that you can keep your customers informed of
progress.
16. Better conversion rates. Once your clients see that your estimates
can be relied on and that you’re better at timely project delivery than
your competitors, they will start turning to you for new work.
17. Better designs. By anticipating design risks earlier you can create a
design for your product that works and that helps you to identify and
eliminate defects.
21. Better use of test team resources. When your projects run on
schedule, it becomes easier for testers to plan their time so that they
are available when you need them. This means no more hold-ups
waiting for resources to become available.
22. More time for testing. All too often, time for testing is cut to the
bone in order to reduce the impact of slippage from earlier on in the
project. With good risk management in place you can deliver
solutions into testing sooner so that they can be tested fully.
you’re able to eliminate defects from the final product and at an earlier
stage. This translates into better products. The cost of late defect
removal is staggering: a defect that slips through testing into the final
product costs up to 1,000 times more to fix than if it were resolved
before the product shipped. Each defect you find during testing leads
to lower costs.
can then focus on your company’s future and not on short term defect
fixing.
26. Fewer day-one disasters. When your projects start arriving on time
you take the pressure off operations teams. With good risk
management in place you can plan upgrades in confidence, knowing
that the new systems will arrive on time.
• If you have to cancel a project right now and write off the investment to
date;
• If you complete a project late and as a result you are unable to achieve
the expected benefits. This could be because of a failure to achieve
improvements in productivity, or the need to extend an expensive
maintenance contract, or the need to hire new people;
• If each one of your current projects came in just one week later than
planned, and as a result cost the equivalent of one week’s project spend;
Step 3: Set tangible goals for your return on your risk management
investment. Once you have a better idea of your potential exposure and the
specific projects that are most at risk, you can start to build a business case
for your investment in risk management. My rough rule of thumb is this: if
Step 4: Secure your risk management training budget. Once you have a
clearer understanding of the potential loss, the particular projects that are
most at risk and a tangible goal for your investment you have all that you
need to make the case for your risk management training budget.
At first you’ll notice many more items being escalated for action. This isn’t
because things are getting worse, it’s just that for the first time people are
openly discussing and trying to resolve problems that in the past would
have gone unnoticed until they became serious issues. Next you’ll see your
people are tackling problems earlier and resolving them more quickly and if
you’re a project manager, they start taking responsibility for resolving
problems and will come to you only when they can’t fix the problems
themselves.
projects so that your project team leaves the course with the risk
management plans they need to drive your project.
The use of real life case studies. Our consultants have years of experience
and use their knowledge to explain how our techniques work in practice.
Other services:
• Risk Management training. for those who are not directly involved in
managing risks but who need to understand the risk management
process.
www.bryanbarrow.com
Is your company spending more than it can afford to on projects? Does every project proposal that crosses
your desk fill you with hope that you ’ ll get good value for money, or fill you with fear that this will be yet
another drain on your company ’ s scarce resources in the weeks and months to come?
If you ’ ve ever needed to reduce your project costs, increase your return on investment and put your
company ahead of the competition, then this White Paper will help you.
projects delivered on time and on budget. With Bryan's help they are able to complete
projects faster and at a lower cost, so they go on to profit from delivering on time. Bryan
works as a professional speaker and consultant. He runs risk management seminars and