Calculated Risk – Scaleable Calculated Risk – Scaleable Management tool or Risky Management tool or Risky

BusinessBusiness

Chris EnstoneChris Enstone

1111thth February 2008 February 2008

ContentsContents

• Risk management toolboxRisk management toolbox

• Two case studies at either end of the Two case studies at either end of the spectrum of risk managementspectrum of risk management

• I’ll argue that the same techniques I’ll argue that the same techniques are used each in different scaleare used each in different scale

Risk management toolboxRisk management toolbox

• Have a plan, a methodologyHave a plan, a methodology• Identify risks and their outcomes then categorise Identify risks and their outcomes then categorise

(likelihood, impact, proximity)(likelihood, impact, proximity)• Ideally manage them away by changing strategy or Ideally manage them away by changing strategy or

transferring to a third party (e.g. insurance)transferring to a third party (e.g. insurance)• For those that you can’t treat – i.e. develop mitigation For those that you can’t treat – i.e. develop mitigation

actionsactions• Monitor your environment and keep interested parties Monitor your environment and keep interested parties

informedinformed• If risk comes to pass, becoming an active issue then bring If risk comes to pass, becoming an active issue then bring

mitigation into playmitigation into play• How’s the mitigation action getting on?How’s the mitigation action getting on?• If effective then good otherwise time to think about plan bIf effective then good otherwise time to think about plan b• Review and close off issues once managed awayReview and close off issues once managed away

The case studiesThe case studies

• First, sailing across an oceanFirst, sailing across an ocean

• Second, delivering programmes to Second, delivering programmes to immutable timescalesimmutable timescales

Case 1 SailingCase 1 Sailing

• Thousands of yachtsmen sail across Thousands of yachtsmen sail across oceans worldwide every year, the oceans worldwide every year, the majority with few problemsmajority with few problems

• However, there are very specific, However, there are very specific, potentially life threatening, risks that potentially life threatening, risks that need to be addressedneed to be addressed

• Here’s a few to considerHere’s a few to consider

Potential risksPotential risks

• Identify and quantify the risks Identify and quantify the risks (likelihood, impact, proximity)(likelihood, impact, proximity)

RiskRisk OutcomeOutcome LikeliLikeli

hoodhoodImpImp ProxProx

A stormA storm Get washed Get washed overboard, boat sinksoverboard, boat sinks

HH HH NN

Hole in hullHole in hull Boat sinksBoat sinks LL HH NN

FireFire Get severely burnt, Get severely burnt, have to abandon boathave to abandon boat

LL HH FF

Mitigation – The stormMitigation – The storm

MitigationMitigation

• Outcome - What are trying to achieveOutcome - What are trying to achieve– Plan A – try to avoid the stormPlan A – try to avoid the storm– Plan B - if the boat stays afloat and we’re attached to it we’ll survivePlan B - if the boat stays afloat and we’re attached to it we’ll survive– Plan C – if the boat sinks we’d better make sure that we’ve got alternativesPlan C – if the boat sinks we’d better make sure that we’ve got alternatives

• Analyse the environmentAnalyse the environment– (A) How can we avoid the storm?(A) How can we avoid the storm?– (B) How strong is the boat, how will it damaged?(B) How strong is the boat, how will it damaged?– (B) How can I minimise the chances of hull failure?(B) How can I minimise the chances of hull failure?– (C) What am I going to do if the boat sinks?(C) What am I going to do if the boat sinks?

• Mitigating actionsMitigating actions– (A) Choose a time when chances of storm are low and then find a good weather (A) Choose a time when chances of storm are low and then find a good weather

windowwindow– (A) Make sure that the radio is tuned to the weather forecasts to avoid the storm(A) Make sure that the radio is tuned to the weather forecasts to avoid the storm– (B) Baton down the hatches(B) Baton down the hatches– (B) Secure anything loose that can cause damage (B) Secure anything loose that can cause damage – (B) Make sure that I can’t get swept off(B) Make sure that I can’t get swept off– (C) Service the liferaft and charge the handheld radio(C) Service the liferaft and charge the handheld radio– (C) Buy a locating beacon(C) Buy a locating beacon

Plan A – the storm arrivesPlan A – the storm arrives

• Talk to the crew to let them know what Talk to the crew to let them know what happeninghappening

• Measure wind speed, is it getting higher?Measure wind speed, is it getting higher?• Watch the sea, is it getting any bigger?Watch the sea, is it getting any bigger?• How’s the boat coping, under control?How’s the boat coping, under control?• Everybody OK?Everybody OK?• If yes to the last two then hang on If yes to the last two then hang on

otherwise, do somethingotherwise, do something• Remember that storms always endRemember that storms always end

Case 2 - Programme delivery Case 2 - Programme delivery to immutable timescalesto immutable timescales

• Large IT programmes have a low Large IT programmes have a low success rate (<30%), yet most set success rate (<30%), yet most set out with a delivery date.out with a delivery date.

• Thus the primary risk is usually ‘late Thus the primary risk is usually ‘late delivery’delivery’

• A case study of the transformation of A case study of the transformation of the UK patent office from paper to the UK patent office from paper to electronic processingelectronic processing

BackgroundBackground

• Paper patents for 100s of yearsPaper patents for 100s of years• Had been considering the notion for over five yearsHad been considering the notion for over five years• Driver was the loss of business to other patent officesDriver was the loss of business to other patent offices• Need to transform organisation of 1000 staff to work Need to transform organisation of 1000 staff to work

digitallydigitally• My role was to deliver electronic patents within 9 My role was to deliver electronic patents within 9

monthsmonths• It was decided to use a third party application to It was decided to use a third party application to

deliver the ITdeliver the IT• Needed to align the business and customers to the Needed to align the business and customers to the

visionvision

Potential risksPotential risks

RiskRisk OutcomeOutcome LikeliLikeli

hoodhoodImpImp ProxProx

Don’t delivery Don’t delivery to timeto time

Loss of credibility in Loss of credibility in the market leading to the market leading to lower market sharelower market share

MM HH NN

Organisation Organisation cannot cope cannot cope with rate of with rate of changechange

Leading to disruption Leading to disruption to service post go liveto service post go live

LL HH NN

Key staff Key staff become become unavailable at unavailable at important important timestimes

Leading to severe Leading to severe disruption to delivery disruption to delivery schedulesschedules

MM HH FF

Mitigation – late deliveryMitigation – late delivery

MitigationMitigation

• Outcome - What are trying to achieveOutcome - What are trying to achieve– Plan A – we need to deliver to timePlan A – we need to deliver to time– Plan B – what if things start to slipPlan B – what if things start to slip

• Analyse the environmentAnalyse the environment– (A) How do we measure success?(A) How do we measure success?– (A) What is the minimum delivery needed to achieve success?(A) What is the minimum delivery needed to achieve success?– (A/B) How do we know where we are?(A/B) How do we know where we are?– (A/B) Who is going to assess?(A/B) Who is going to assess?

• Mitigating actionsMitigating actions– (A) Consult widely before committing to flush out problems early(A) Consult widely before committing to flush out problems early– (A) Get buy in from all key stakeholders to work together(A) Get buy in from all key stakeholders to work together– (A) Divide the delivery into manageable portions(A) Divide the delivery into manageable portions– (A/B) Put a monitoring regime in place to monitor progress(A/B) Put a monitoring regime in place to monitor progress– (A/B) Keep stakeholders informed of progress(A/B) Keep stakeholders informed of progress– (B) Have a plan ready if things look as if they are going to be late(B) Have a plan ready if things look as if they are going to be late

Plan B – looks like a late Plan B – looks like a late deliverydelivery

• Should not come as too great a shock if Should not come as too great a shock if there have been progress updatesthere have been progress updates

• Keep talking to all key stakeholdersKeep talking to all key stakeholders• Engage all of stakeholders in the re-Engage all of stakeholders in the re-

planning exerciseplanning exercise• Keep everybody informed of what is Keep everybody informed of what is

happeninghappening• Announce a new date as soon as Announce a new date as soon as

possiblepossible

Common themesCommon themes

• Analysing the environmentAnalysing the environment

• Stakeholder management Stakeholder management

• Identify, categorise and manage key Identify, categorise and manage key risksrisks

• Plans A, B and CPlans A, B and C

• Monitoring effect of mitigating actionMonitoring effect of mitigating action

• Pro active management of risk when it Pro active management of risk when it occursoccurs