Soundview Executive Book Summaries
Though most companies use some variation of stage-gate product development, they still expend little effort on risk management. Project managers identify risks before the initial gate, but ignore them instead of managing them effectively. The project experiences needless surprises in schedule, cost, budget or market acceptance late in the game, when the same problems have happened many times before.
Proactive Risk Management enables product development teams to enhance their management of project risks by helping them to identify risks early and manage them to diminish disruption throughout the project. Using a practical, easy-to-use, fact-based approach, Preston Smith and Guy Merritt help developers manage all the risks associated with a project. Although this process is tailored to commercial product development, it is applicable to many other types of projects with some adaptation.
Risk is a loaded term, so think of risks as surprises. This book is about managing surprises in a project environment. A surprise could be an engineering design that fails in field trials, an unexpected competitor or an accounting error. The authors define risk as the possibility that an undesired outcome -- or the absence of a desired outcome -- disrupts your project. Risk management is the activity of identifying and controlling undesired project outcomes proactively.
Risk management is an integral part of project management, and product development inevitably requires project management. The authors write that risk management should occur as naturally as managing a schedule, but generally it gets lost in the crunch to get the new products out the door. The authors' goal with this book is to build innate project risk management methodology into an organization.
Every Project Decision Involves Risk
Risk is inherent in product innovation, and therefore every decision about a project involves risk because there is always information we will not have until further downstream. Businesses assume certain risks because of today's increased focus on time-to-market. But importance of time-to-market also makes the schedule delays caused by unmanaged risks less tolerable.
Risk management always deals with uncertainties, whether or not the risk will happen. You will only know for certain that the risk occurs when it happens -- when it ceases to be a risk. Uncertainty cannot be eliminated, but the authors write that it can be narrowed by:
- Clarifying the probability of occurrence of risk.
- Understanding the consequences or alternatives of the risk event happening.
- Determining what drives the risk -- which factors influence its magnitude and likelihood of occurrence.
No matter how well you execute risk management, some risks will still occur. Uncertainty can only be reduced, not eliminated.
The authors warn that risk should not be confused with issues, which are events that are certain to occur. Issues are just as important as risks, but you are aware of them before they arise and they are handled differently than risks.
The five steps that make up the authors' risk management plan are:
- Identifying Risks and Impacts
- Analyzing Risks
- Prioritizing and Mapping Risks
- Planning Resolution
- Monitoring Project Risks
What Is a Risk?
Risks always involve the possibility of loss. We manage risk because we do not want to suffer loss, even if it is a remote possibility. If there is no possibility of loss, there is no reason to manage the risk. The authors remind developers to consider the possibility that the outcome of certain risks might be a gain instead of a loss.
The authors write that developers must be aware of the time component of risks. Eventually there comes a time when a risk no longer exists because you have suffered the loss or the risk has been resolved to cause little damage. You must recognize when the risk is gone, so you can remove it from your agenda. Some risks have no time component and are ongoing. If that is so, they are more risks of being in business than risks of this particular project.
Companies fail at risk management because they fail at one of the two fundamentals of managing risk well: cross-functionality and proactiveness.
Companies make the mistake of believing that innovation is only in research and development (R&D). However most development project risks fall outside of R&D. The authors warn managers that leaving all risk management in R&D will leave a project wide open for most cross-functional risks.
The authors write that companies that are not proactive about risk management make two mistakes. They wait until late in the project when risks start occurring and they let risk management lapse. They write that risk management should begin early in a project and proceed as a monitoring and follow-up effort throughout.
Why Soundview Likes This Book
Proactive Risk Management stands out as an important guidebook for developers because the five-step process it describes provides clear instructions for those who need to effectively manage risk. Although the five-step process must be used in its entirety to make risk management work for any project, the authors' guidance is broad enough so companies can streamline or modify the process to suit their own needs. The authors also offer a useful risk management toolkit that includes many tools and tips that can help support the process of identifying and managing risks. Copyright (c) 2002 Soundview Executive Book Summaries
From the Publisher
"The authors present an easy-to-understand model and an easy-to-implement set of steps to successful risk management. This book should be required reading for project and product managers. I believe you can read it one day, implement it the next, and begin seeing results immediately. The model and approach presented here navigates the knife-edge between the obvious babbling and the philosophical musing that seems to dominate the risk management literature."
Patrick Neal, Ph.D., PMP, Manager, Project Management Network, Agilent Technologies 06/01/04
"In our fast-paced environment, there is ever-increasing pressure to bring successful new products and services to market faster than before. This means that risk management is strategically important to the success of your project or venture. Proactive Risk Management provides proven techniques for assessing and avoiding risks before they hinder the results of your project. This excellent manual will be my standard reference on the subject from now on."
Dr. Peter Maddern, Product Development Manager, Kimberly-Clark Europe 06/01/04
"Successfully managing complex product development projects - and keeping effected customers, stakeholders and team members connected - requires clear communication. In my experience as a leader of projects and project managers — in Defense, Aerospace, Commercial Consumer Electronics and Medical Devices/Bio Pharmaceuticals — the most effective basis for that communication is risk identification and management. Proactive Risk Management provides an extremely practical guide to the tools, techniques and strategies that best enable that risk-based communication. It is clear that identifying and accepting the "right" risks within a project can be a powerful competitive edge. Keep a copy of this book on your desk and in the hands of your teams — I will."
Mike Shires, Vice President, Global Program Management, Baxter Healthcare 06/01/04
"This book clearly communicates the challenges of risk management in product development and provides simple, proven methods for addressing them. The authors' experience with managing risk in product development is clearly evidenced in their practical treatment of the subject. They take a holistic view of product development and illuminate the cross-functional nature of risk in product development. They then offer a straightforward procedure for managing risk and suggestions for implementing techniques in the real world."
Kent Harmon, Director, Prod. Dev. Imp., HPA Division, Texas Instrument 06/01/04
