by Maya Payne Smart

BOLTS
FROM
THE BLUE
Poorly managed economic
risks can strike down
projects at lightning speed.

54 PM NETWORK MAY 2010 WWW.PMI.ORG

MAY 2010 PM NETWORK 55
 B
Beneath the gauzy layer of optimism
that the worst is over, danger lurks.
Economic fortunes may be picking
up—but not everyone’s prepared for the
risks resulting from the rollercoaster ride
of change wrought by the recession.
No shocker here: Many of the
threats are tied to the fickle financing
sparked by the downturn. Scarce access
to capital and diminished cash flow
mean companies may not know where
the money for projects is coming from,
or when. Some projects are put on hold,
while others face shortened or
stretched-out timelines.
“I would say the number-one risk
that we face is instability of funding,”
says Glen Alleman, vice president of pro-
gram planning and controls at Lewis &
Fowler, a project management consult-
ing firm in Englewood, Colorado, USA.
The volatility in budgets has forced
shorter-term, iterative planning processes
into play across many sectors.
Defense contractors, for one, have
tackled the tumult with “rolling waves,”
allocating budgets on a six- to nine-month
basis. “You never plan beyond what you’ve
got defined because the world is going to
change,” Mr. Alleman says. “That’s the
only way to survive, and it drives the
financial folks crazy. They have to figure
out how to live within this profile.”
Even governments aren’t immune to
project threats presented by new budget
crackdowns.
“The [U.K.] Ministry of Defence
has a multibillion-pound budgetary
black hole, which it is trying to fix with
a ‘save now, pay later’ approach,” Amyas
Morse, head of the National Audit
Office, said in a statement. “This gives
a misleadingly negative picture of how
well some major projects in the
Ministry of Defence are managed, rep-
resents poor value for the money and
heightens the risk that the equipment
our armed forces require will not be
available when it is needed or in the
quantities promised.”
A NEW WAY OF THINKING
Cautiousness prevails even in places such
as Australia that weren’t hit as hard by the

Savoir-Faire in Low Supply

Sometimes the risk comes from
within, as talent shortfalls put com-
panies and their projects in danger.
In many parts of the world, there
are insufficient numbers of veteran
project and program managers,
says Glen Alleman, Lewis & Fowler,
Englewood, Colorado, USA.
“That’s a risk [because] the
younger managers are all very
smart, but they haven’t lived
through hard times or difficult pro-
grams,” he explains. “They are
lacking the experience about what
to do in the face of disaster. If you
haven’t lived through one downcy-
cle, you are always optimistic.”
Younger project managers have
certainly learned some tough les-
sons recently, but it may not be
enough.
In some cases, companies are
turning to outside help. Aerospace
firms, for example, are increasingly
relying on contractors from engi-
neering or program management
consultancies.
“What companies have done is
spread their risk by having a smaller
core cadre and then having specialty
contracting firms,” Mr. Alleman
says. “Usually, it’s less expensive
because they don’t have to pay
retirement and other benefits.”
In the energy sector, heightened
environmental consciousness has
increased pressure on utility com-
panies to deliver power more effi-
ciently. Many electricity networks
are being upgraded to a smart grid,
and the needed expertise is only
just starting to mature. Simply put,
inexperience puts proper project
execution at risk.
“It’s a new way of doing things,”
says Murtaza Hassanali, PMI-RMP,
PMP, Integral Energy, Huntingwood,
New South Wales, Australia.
“We’re entering a complex phase.
Intellectual property becomes your
competitive edge, and that’s going to
be scarce. Rather than only relying on
consultants, project managers are
working more collaboratively and
finding new ways of solving problems.
“Some of the ways of operating
in this new era mean project teams
sometimes have to develop their
own innovations. If a project man-
ager hits an obstacle, there is little
opportunity to seek assistance and
expertise from outside of his or
her typical resource pool.”

56 PM NETWORK MAY 2010 WWW.PMI.ORG

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PM
financial crisis, says Murtaza Hassanali,
PMI-RMP, PMP, IT program manager,
Integral Energy, Huntingwood, New
South Wales, Australia.
“It’s not that there is a lack of funding,”
he says, “but [companies] are very conser-
vative in how they spend their capital.”
That stance brings longer invest-
ment decision-making and heightened
monitoring.
When you plan a project based on
historical experiences, you might base
it on a three-month timeline, for
example. But now it takes twice as long Take Advantage of PM Network’s Pass-Along Value!
to accommodate “stronger stakeholder
engagement, emphasis on business Have you found an article in PM Network® you’d like to use as
change and transformation to cater to a presentation tool? Would you like to distribute a project
the new thinking in investments,” Mr. management article as part of a newsletter? Contact the
Hassanali says. Project Management Institute (PMI) for information on reprinting
The rules have changed. articles (pmipub@pmi.org) and permission to distribute them
“We’re entering a new phase after (permissions@pmi.org).
the global financial crisis where there

MAY 2010 PM NETWORK 57


Running the
Risks
Here’s a rundown of what to
watch out for this year, according
to the World Economic Forum:
> Economic Risks
Oil price spikes
Major fall of the U.S. dollar
Slowing Chinese economy
Asset price collapse
Retrenchment from globalization
Burden of regulation
Underinvestment in infrastructure
> Geopolitical Risks
Transnational crime and corruption
International terrorism
Nuclear proliferation
Global governance gaps
> Environmental Risks
Extreme weather
Water scarcity
Natural catastrophes
Air pollution
Biodiversity loss
> Societal Risks
Pandemics and diseases
Migration
> Technological Risks
Critical information
infrastructure breakdown
Data fraud/loss
SOURCE: GLOBAL RISKS 2010
are less existing textbook approaches
or expert knowledge available,” he
says. “When you talk about dealing
with the new environment or new risk
mitigation, you have to combine what
you learned in school with experi-
ences and new innovative methods.”
To truly master the altered risk
environment, companies need every-
58 PM NETWORK MAY 2010 WWW.PMI.ORG
one on guard. Project managers and
their teams must look far beyond the
traditional confines of their proj-
ects—yet such a wide view doesn’t
always come easy.
“Project managers tend to deny that
risk will occur on their projects,” says
David Hulett, PhD, president, Hulett &
Associates, a project risk consultancy in
Los Angeles, California, USA. “But if
pressed about risks, they will generally
focus on technical and engineering risks
because they often come from an engi-
neering background. Technical risks are
often some of the least important risks
to a project.”
Too many project managers are
silent, oblivious or in denial when it
comes to other risks, particularly exter-
nal or organizational ones, that can
affect project outcomes. “They are
smart enough to recognize them,” he
says. “They just don’t think about them
very often.”
It’s up to program and portfolio man-
agers to get project managers thinking.
They should also be on the lookout for a
possible whitewash. “Often, project
managers are biased in wanting their
project to look good to management and
customers, so they whitewash the project
risk by denying it may occur or by down-
playing risks’ significance to the project,”
says Dr. Hulett.
Those at the top level need to coor-
dinate communication and action
among all the project players affected,
says David Hillson, PhD, PMP, Risk
Doctor & Partners, Petersfield, Hamp-
shire, England.
All too often, project managers are
left to uncover major risks on their
own when others within their organi-
zation could have proffered warnings.
“Project management is an increas-
ingly mature discipline with a proven
track record and because it is succeed-
ing people are pushing it to do more,”
he says.
There are limits, however.
“I would be resistant to breaching the
project scope boundary,” Dr. Hillson says.

Project managers shouldn’t have to
worry about how other business deci-
sions will affect their organization as a
whole. If, for example, a new business is
acquired, they can’t be concerned about
risks to the relevance, funding and
staffing of a given project.
“Business managers should com-
municate downward to project man-
agers, ‘Here’s what’s happening, how
it affects you and what I want you to
do,’” Dr. Hillson says.
Such efforts may require significant
time and several meetings, though in
many cases a simple policy directive
will suffice. Dr. Hillson recently wit-
nessed a senior management team send
project managers a new set of guide-
lines after it recognized the implica-
tions of a country’s political shift for its
projects.
A risk breakdown structure can also
help project managers think more broad-
ly about potential problems—examining
endemic project management risks,
“ofThe effectiveness
risk management
is very patchy.
The key indicator
is whether people
are being proactive
or reactive. The
majority of project
managers are still
in reactive mode.
—David Hillson, PhD, PMP
”
such as planning issues, as well as exter-
nal risks, such as regulatory shifts.
Brainstorming around the various
sources of risk to identify and categorize
risks in greater detail helps project man-
agers develop more sophisticated views
of the context in which their projects
succeed or fail. Oftentimes, bringing in
outside experts with varying discipli-
nary backgrounds results in a more
inclusive list of potential risks. Project
managers may also benefit from main-
taining checklists of risks encountered
in similar projects, Dr. Hulett says.
Threats don’t always fall into neat
categories that can be fully predicted
or controlled, of course, but that’s no
excuse for a lack of due diligence.
“The effectiveness of risk management
is very patchy,” says Dr. Hillson. “The key
indicator is whether people are being
proactive or reactive. The majority of proj-
ect managers are still in reactive mode.”
Companies that can’t change that
philosophy may be in danger. PM
MAY 2010 PM NETWORK 59