Managing Project Risks: Allocating Funds, Not Just Numbers
In a week long project review meeting recently, an executive asked “Why am I writing this check? We don’t have the money.” He was referring to the fact that as part of a partnership with a customer, we had to increase funding for the project by $6 Million dollars. No one likes writing a large check that they didn’t expect. It doesn’t matter if it’s for a business or your life at home.
In the world of project management, one of the key elements is managing change, risk and unknowns. In my organization, we do this fairly well, and have pretty charts, templates and spreadsheets that capture various risks and concerns. These risk logs are updated on a regular basis and we often assign an expected cost to them. For example, if we believe the customer may change their requirement from A to B, we may estimate the change will cost $100,000 in energy. The log contains all of these types of items and sums them to the total program risk at the bottom of the page.
We hold monthly reviews with our leadership to review the project status, during which we talk about progress, challenges and risks. Among the agenda items is a review of a consolidated risk log, which lists the risk items, but not the associated values. This was a mistake made by all involved.
It turns out that some of the risks became reality and we had to request and injection of $6 million back into the project. The problem was, while we had reviewed the risks with the business leadership, we had mostly focused on the risks and probabilities, and not the potential costs.
This came as a lesson learned for us, as while we had tracked the risks in a detailed fashion at the working level, we had failed to routinely put all data – including costs and potential financial hazard – in front of the people who sign the checks. Our spreadsheets had numbers, but we did not set aside the actual funds. Publicizing the numbers on a regular basis would have ensured we all knew the potential increase in costs and could have set aside funding. It’s a very large firm so we can move past it. But remember: managing project risk well requires you allocate actual funds (at least partially) in case they are needed. You don’t want to find yourselves writing a big check with nothing in the piggy bank.