This session will discuss the value and use of Unknown Risk Contingency Planning in project management. It’s important to clarify this because contingency planning in other environments, disaster planning for example, is a collection of independent “operational” plans targeting known or potential threats.
Just as a quick reminder, “risk” in project management, refers to “an uncertain event or condition that, if it occurs, has a positive OR negative effect on project objectives.” (PMBoK) We covered risk identification, analysis, and probabilities in previous articles. If you missed them, you will find those articles and more here on InfoBarrel.
- Project Management Practitioner: Risk Identification
- Project Management Practitioner: Risk Management and Assessment
- Project Management Practitioner: Risk Impact Analysis and Probabilities
Credit: Cory Stophlet, 2014
Risk originates in uncertainty and thus the outcome cannot be predicted with absolute certainty. It’s not double talk. We know that an outcome of some sort will happen, but what that will be and how significant the affect, is a matter of speculation. Project Managers (PM) speculate on risk and the probabilities of occurrence. PMs speculate on the probability of multiple outcomes and their impact(s) on the project’s scope, goals, and objectives. There are “known” and “unknown” risks. Project Management Institute (PMI) states that “unknown risk” cannot be actively managed; meaning that, if there is no way to identify a specific risk then there is no way to take steps to mitigate or avoid it. Known risks are what we aggressively deal with. If it is known then we can speculate on the potential outcomes; thus, we can decide how we will deal with it. Now that we have the PMI school-room answer, as an experienced PM with many years of experience in military operational environments, I have a slightly different slant on the risk preparations issue.
Preplanned contingencies are easy to prepare for: the project manager (PM), the team and sponsor decide whether to avoid, transfer, mitigate, or accept each risk item. As stated above, contingency planning in project risk, for our purposes here, is not the same as is with a National, State, County, City Emergency Services operation. The focus is on the “unknown” and even that is a vague term to use in risk. Here’s where my time as a military operations officer benefits me and hopefully the reader. And, this is where contingency planning is really important. Even though we may understand the PMI delineation of “unknown” versus “known” risk, unknown is still a relative term. The only thing that is really unknown is whether or not a specific risk of quantifiable probability can be attributed or assigned to specific work package, task, and activity. But all risk in a project, even unknown (which in my mind is more accurately called “unidentified” or “low probability” risk) can be managed and planned for through Problem-Response categories.Credit: Cory Stophlet, 2014
It does not matter, whether it is known or unknown, all risk falls into these categories:
1. Human Resources/Work Force: Availability and number of workers (skilled and unskilled). This includes internal employees and external work force, funding benefits, union, etc.
2. Material Supplies and Equipment: Includes purchased resources, rented or leased resources, common business equipment, business supplies, project unique items, as well as, procurement contracting rules used to hire temporary employees, consultants and contractors.
3. Time/Duration: The Project, Work Packages/Tasks/Activities, Lead and Lag Time. The entire timeline of a project is an unknown from the standpoint of certainty. It’s a guesstimate based on accumulated assigned individualized guesstimates of work package/tasks/activities duration, and dependent on the logical sequencing of work units into an efficient manageable project plan (or process/project flow chart). It’s an educated guess – yes, but a guess all the same. A notorious time robber is the availability of resources when they are needed – or more accurately, not available when needed. You’ve verified that you have a stockpile of material for your project in a warehouse. The next day everything is gone because the place was robbed. Unless you are storing items in a high crime rate area and with no security, this is not the usual “known” risk item on most PM plans. It falls in the “unknown” or as I like to use, the “unidentified and extremely low probability” category.
4. Cost/Funding: Once the project is approved, a PM generally considers the total allocated amount as locked-in for the duration. We all know that there will be glitches along the way that may cause the total cost to go up or down based on project performance; however, we rarely if ever consider the potential of the budget getting cut in half at some point after the project has begun. This very scenario happens in the military far too often.
5. Change Management: Planned and Unplanned inclusive of Rework, Repairs, Scope Change, and Scope Creep events. All PMs know that change will happen, but what are you doing to prepare for the unknown? It can take the form of a business decision, unapproved/planned scope creep, unforeseen rework or repairs. Even unforeseen legal requirements can pop-up after an election or a congressional vote on some obscure building code, environmental, security requirements placed on the law books during the life-cycle of your project.
6. Mission Change: Vision, Business, Strategy Change, Major Scope Change, and Project Death. This includes situations when an organization is sold-off, goes out of business, terminates a department, or determines that project cost or cost-to-benefit ratio are no longer a prudent expense.Credit: Cory Stophlet, 2014
Risk Response Contingency Plan Options
1. Human Resources/Internal/Organic:
1.a. Maintain a list of internal employees and their skills relative to the project. Include the names of the supervisors and phone numbers. Become familiar with the supervisors and the other projects coinciding with your project. Get a feeling for the priority of your project to all other projects. If your project is a high priority, then it is likely you will be able to pull human resources from other projects. If your project is a low priority project, then you should consider other options: train current team members or use a “hip-pocket” contract for contractors/temporary employees (I’ll discuss that again below). Identify relative skills that can be taught to available employees or current team members. Conduct training if that can be accomplished in-house or include outsourced training and either acquire approval for in-house funding so that it does not come out of the project budget. If HR funds are not available, then the PM might need to include that training within the project budget.
1.b.“Hip Pocket” Contracts: This is an old term used in the U.S. military for those of us that had jobs requiring lots of travel with little or no notice. We had “hip pocket” orders. In other words, they were special travel orders you carried with you, usually in your hip pocket, that permitted you to obtain the necessary travel means and hotel/motel without filing a funding requests or personal travel orders. Your signature was all you needed to commit government funds needed to perform the mission. In business, this is essentially a pre-approval option that organizations might consider; if the Sponsor, Procurement and Contracting office are open to the idea. “Hip-pocket” simply means that the PM has been given pre-approved authority to sign contracts and commit funds for specific purposes within a set limit when a quick response is needed to acquire substitute materials/equipment and outside consultants/contractors.
2. Materials and Supply:
2.a.1. Human Resources/Consultants/Contractors: Maintain a list of businesses that can provide temporary employees, consultants/contractors with the right skills and experience for the project. Coordinate with the procurement and contracting office for procedures in case this contingency option becomes a necessity.
2.a.2. Alternative Materials/Supplies: List all the primary suppliers being used to for the project’s materials, supplies and equipment. On the list match the primary suppliers with an alternate supplier best capable of providing matching specification materials/supplies/equipment.
2.a.3. "Hip Pocket” Contracts: This is essentially a pre-approval option that organization might consider; if the Sponsor, Procurement and Contracting office are open to the idea. “Hip-pocket” simply means that the PM has received pre-approved authority to sign contracts and burn funds for specific purposes with a set limit when a quick response is needed to acquire substitute materials/equipment and outside consultants/contractors.
2.b. Maintain a list of all materials, supplies, equipment, especially unique and expensive. Identify alternative sources for critical and non-critical supplies, materials and equipment. Also consider alternative supplies, equipment and materials; rarely will there only be a single source for what the project requires. Have an alternative and be ready for added costs or potential difference in specifications that may affect scope.
2.c. Rework/Revisions: Error Driven, Testing Failed, Performance Failure and Upgrades. Analyze the work packages and the schedule to find possible rework loops and ways to accommodate any failures or alterations to equipment, materials, supplies, etc. In many respects this should fall into “known” risk preparations; however, sometimes, there are just some things that can’t be foreseen. I believe it is important that a PM assume the worst when a task that involves the expenditure, cutting, sizing, and assembly of parts. There is also the issue of an approved change to material requirements that can force the removal and rework of previously installed/assembled materials, parts, or equipment. It happens. Even approved changes to upgrade a previous installed part can cause havoc to a project schedule and overall cost.
2.d. Example: On the first day of the project the client will stomp up and down stating categorically that they want the “Model A” installed at $10,000; three months later the client learns that the “Model X” has more features and functions and stomp up and down demanding to have the upgrade but they don’t want to pay the full price, nor will they accept added costs for all the uninstall and new install work. It happens.
3. Time/Duration: Closely track time and duration of work accomplished against the plan. Identify and capitalize on any early completion time. Treat time as money; bank it. Look for opportunities to cut duration of tasks/work packages, especially along the critical path. Although the critical path usually determines the project duration; in reality, the project performance is measured against the original plan and thus any duration time you can cut on the critical path can be banked (considered reserve) for when other activities take longer than planned. Maintain your time/duration flexibility.
4. Cost/Money: The scope of the project implies that all scope objectives, features, functions, specifications are critical, but that is not always true.
4.a. When there is an unexpended funding cut to a project, it’s time to pull out your PM “Do-or-Die” requirements list. Projects generally start out with a simple set of goals and objectives, then as the specifics get ironed out and more stakeholders, customers, clients get to provide their own touch to the project, the requirements can grow significantly. Go back to the beginning or the planning initiation, the notes and messages, meeting minutes from those first days of defining the purpose and expectations for the project. Then record the “do or die” requirements; the requirements that defined a positive cost-to-benefits ration; everything else is fluff added after the fact. Cut the fluff as much as possible through the change control process as described in the article “Project Management Practitioner: Change Control Management.” In this way you can let the sponsor and contracting office take ownership of the approval or disapproval and any cost impact; good or bad.
4.b. Track all costs closely and look for every opportunity to cut those costs. The goal is to create, what I call a “ghost” or “paper reserve” funds. This is money that has not been spent, or saved versus the planned amounts and can be considered a reserve account on paper. If a work package (WP) is slated to cost $1,500 to complete and you manage to have it actually accomplished for $1,100, then you have $400 left for your ghost/paper reserve account. Although, in performance reporting you will report that the WP was completed on time and under-budget, the project does not actually turn-over $400 back to the sponsor. You make it clear that the $400 and any other under or over budgeted amounts are being tracked and reconciled on a spreadsheet (or other method). You might have to include those numbers in your regular reports to the sponsor and contracting. However, it is very important to communicate that any under-budget funds not be considered available to other projects or purposes because other WPs and risk elements of the project will likely burn-off any ghost/reserve funds.
5. Scope Change Driven/Change Control Driven: Change happens: we know it will. But what that change will be, that’s another matter. This is a major reason for the ghost/reserve funds I describe above. Scope creep will occur and much of it will cost the project in terms of real money and time. Your ghost/reserve funds and ghost/time will be how you pay for it. I’m not going to reiterate how the change control process works, since I wrote at length on the topic in the article listed earlier; however, it should be enough to say that everything mentioned above will affect the scope of the project in terms of vision, goals, objectives, features, functions, specifications, budget and duration. Change control and scope control are more than just tools to adjust the project; they are a means to communicate IMPACT of change to the PRODUCT of the project.
6. Mission Change: Have an exit strategy in place for project death. No joke. Although this is the least likely scenario, it too happens in turbulent industries. The exit plan is not unlike a project close-out plan.
6.a. The concerns are to include whether or not the team and other employees are being let-go from the organization, whether there are funds to be reconciled and turned over, or are there debts incurred to vendors because the customer/client ran out of funds before the work was completed.
6.b. Is there excess or unused materials and supplies that need to be restocked or attempt to have turned back in to a vendor for refund?
6.c. If the organization is simply making a business decision to move in a different direction, where does this leave you and the team?
6.d. Determine if there is a new project or if there is a role for the team (and yourself) in the new direction. Can team members and you be re-purposed into other company roles until the next project? Consider training options: Are there in-house training options to allow the team members to stay in the organization in new roles OR can the team and you (PM) serve as trainers for the business until the next project opens up.
6.e. The worst case is you will need to help the team by writing letters of recommendation for each member and possibly advice or mentor them on job searching.Credit: Cory Stophlet, 2014
Unknown Risk Contingency Plan Development and Tracking
In the previous risk articles we discussed capturing all the identified risk events in a document, spreadsheet, worksheet, software tool (MS Project) or business unique webpage tool. The same rules that were discussed in the other articles about “known” risk are the same documentation methods used for “unknown” risk contingency plans. Bottom Line: Work Sheets and Spreadsheets.
There are mathematical methods of quantifying risk; those were touched on the previous articles. In the future, I will spend more time on mathematical calculations in risk at a future date. In most projects, using complex calculations for risk probabilities and impact is not necessary. A rough-estimate based on simple and educated guesses can be quite sufficient and effective. If you had the opportunity to read the other risk articles, you might remember I talked about using worksheets and or spreadsheets to list each identified “known” potential risk event and include a set of steps, actions, instructions with identification numbers and letters corresponding to the work package/activities. That is great for the “known,” what can we do about the “unknown” risk? Is there anything we can do to be proactive with the mysterious “unknown”?