We deal with appetites and thresholds every day, both personally and professionally. Project risk management is no exception and knowing your appetite and threshold may save your project a lot of grief.
When managing project risks (or any risks for that matter), I’ve found that there are always two versions of appetite and threshold. The first is what I’ll call the “perceived” level and the second is the “actual” level. This may sound like splitting hairs, but I’ve found multiple times on projects that they both do exist and always come into play at some point.
PROJECT RISK APPETITE AND RISK TOLERANCE
First, by appetites and thresholds I mean the organizational or individual tolerance for risk on any project. This is where grading risks comes in very handy. Organizations, your management, and your stakeholders need to understand what might happen on your project and gauge it against their comfort threshold. It won’t change the risks (or issues if they “attack”) but it may alter the strategy you use to manage them. The baseline you use to measure is the “perceived” appetite or threshold. It is how the organization views itself in respect to risk
ACTUAL APPETITE COMES INTO PLAY
And this is where “actual” comes into play. More often than I’d like to remember, organizations’ real appetites for risk are far smaller than the “perceived” appetites. This is all well and good if the risks never become issues, but once they start to arrive in full force, the organization has to be ready to implement whatever plan was agreed to. There is little time for, “I didn’t realize all those risks would become issues. We can’t afford to handle them all now.” Yet that is what happens when your perceived and actual appetites don’t line up.
Think of it this way, if it helps. I’ll assume all of us where kids at one point in our lives. We all expressed some desire to take on risks, whether a bike stunt, eating candy, or some other act of mischief. Perhaps we dreamed up in our head some great stunt, say riding down the plowed row of the garden and jumping the creek via a homemade ramp. I promise I’m making this up – and nobody check with my mother to see if she remembers it either, OK?
The idea never occurred to me … I mean us … that we couldn’t have possibly gathered enough speed to make the jump, let alone cover the distance and land while turning sharply to go up a tiered foot path. The perceived appetite for the risk far outweighed the reality of the stunt which had said mother questioning why I was sitting there quietly with a fat lip after a massive failure that never involved any “air time” at all – just a flipping ramp and a crash in the creek.
A LESSON LEARNED
The bottom line, and the moral of my little illustration, is for a project manager to know the organization well enough to see the gap between perceived and real risk appetites and thresholds. Failing to do so will cause problems and likely escalate the level of other risks in addition to those caused by the issues that have already occurred. It shouldn’t be a guessing game.
Remember, no matter how hard you pedal down that garden row, the jump won’t look like it did in your mind. And it will probably hurt a lot more than you anticipated.
Bio:
Mark Moore has held multiple professional positions in IT and business for nearly three decades serving organizations both small and large, public and private. With over half that time as a project manager, he has successfully managed major initiatives spanning multiple years with a cost of over $3 Million and teams of over 250 people. He has been a Project Management Professional since 2002, served as President of the PMI Western Michigan Chapter, and presented at multiple NCPMI Annual Events. Mark holds a Masters of Education degree from Colorado State University with a concentration in Adult Education and Training. He is an experienced writer, speaker and presenter on project management and team building topics. Mark is the Principal Consultant for Broken Arrow Associates, LTD. He and his family live in a rural area outside of Raleigh, North Carolina.
https://insights.cermacademy.com/2013/10/29-the-great-pretenders-mark-moore/