Organization should pay more attention to portfolio risk management. True or False?

Elza Efendi • August 19, 2018

"The general who wins a battle makes many calculations in his temple before the battle is fought. The general who loses a battle makes but few calculations beforehand. Thus do many calculations lead to victory, and few calculations to defeat; how much more no calculation at all! It is by attention to this point that I can foresee who is likely to win or lose." - Sun Tzu

PPM provides Project Managers in large, project-driven organizations with the capabilities needed to manage the time, resources, skills, and budgets necessary to accomplish all interrelated tasks. It provides a framework for issue resolution and risk mitigation , as well as the centralized visibility to help planning and scheduling teams to identify the fastest, cheapest, or most suitable approach to deliver projects and programs.

Assessing risk at the project, portfolio, and business levels helps us understand risk, make better decisions, negotiate fair contracts, create risk mitigation scenarios, and improve teamwork.

By understanding risk to both individual projects and portfolios, management will be able to make better strategic decisions. Cost commitments, revenue pipelines, and profit forecasts will be accurately stated for each level of risk. The sensitivity of the forecasts will be better understood. When informed by the risk assessment, the entire business will be more profitable.

Why do projects fail? A project fails when the plan is not met. Failure means that a project exceeds the timeline, overspends the budget, or underperforms expectations. There are only two reasons why the plan is not met:

The plan is too optimistic. Overly optimistic plans are very common. They arise when actions and costs are forced to meet predetermined targets. Underbidding, scale-to-fit, and political spin are also common causes.

External events have an impact on the plan. Scope creep, insufficient resources, unanticipated work, and extraordinary events are some examples.

Risks Assessment Benefits for Project

Project contingency can make or break a project. Having too much contingency is uncompetitive; having too little contingency increases the chance of failure. Risk assessment—or allowing for uncertainty within estimates—helps set contingency levels, with a preferred level of risk, and gives the confidence level of outcome targets.

Contingency is often set at the task level, and it is common to add some contingency to every estimate. The amount of contingency added may even be a fixed amount—10 percent, for example. However, it is much better to set contingency at the project level. In other words, use the ranges on the task estimates to understand what contingency should be set for the project as a whole. Setting contingency at the project level reflects the reality that some tasks may be delayed whereas others may be completed on time or be finished early. The amount of management reserve can be set by the same principle—allowing drawdown against risks that were identified at the start of the project.

In addition to setting the right level of contingency, risk assessment also benefits the project team by giving it a forum for expressing concerns and for challenging or defending assumptions. Removing the restriction of having to work with deterministic (single-point) estimates allows team members to give open and honest opinions of what is likely to happen.

A risk assessment workshop is an important—but often ignored—occasion for the project team to come together. It can lead to discussion and clarification of the scope of project tasks, and missing work is often identified. As a result of the workshop, the project team reaches an improved awareness and understanding of the status of the whole project. Although the cost and schedule disciplines for a project are often separate, it is important for these groups to confer with each other. A risk assessment workshop can bring these disciplines together.

Risk assessments also enable risk response and mitigation strategies to be expressed. Cost/benefit analysis can be used to compare risk mitigation strategies and understand how effectively the money would be spent. When the cost of implementing the response is included in the comparison, it can show the net effect of the response on the project cost. The response can then be judged in terms of whether its net effect is to increase cost and whether that increase can be justified by the time it saves. Assessing risk mitigation strategies makes it possible to fully understand their effects.

Risk assessment enables contracts to be fairly negotiated, bids to be submitted at the right price, and sensitivity to be appreciated. In summary, risk assessment means that the project is better understood, can be better planned and managed, and can be more profitable.

Risks Assessment Benefits for Portfolio

Assessing the risk facing a group of projects leads to a better overall view of risk to the portfolio. Looking at the entire portfolio enables individual projects to be compared and understood in terms of their risk. This helps in selection of projects and focusing of management attention on the projects that most need it.

Contingency is best set at a portfolio level. Although not every project will suffer from risk, you know that some will, but you don’t know which ones. Management reserves for the portfolio can be set and drawn down by adherence to the same principles as those discussed in the previous section.

Projects in a portfolio often have interdependencies, shared resources, and shared goals. In risk assessment, they need not be considered in isolation. At the portfolio level, it is important to express risk arising from project interdependency. Risk at the portfolio level can be shared and balanced across projects as a way of mitigating it.

In summary, risk assessment enables to better understand and manage the portfolio as a whole. Organization can use the whole weight of the portfolio to manage the risk.


Risks Assessment Benefits for Business

Risk assessment increases profitability. Contracts can be selected and priced at the right level of risk, and the business can be managed with risk fully understood. Specific risks can be negotiated, it can be made clear who bears them, and they can be built in to contracts.

Cost commitments can also be understood and budgeted—with risk taken into account. Risk assessment can give cost commitment curves at preferred levels of confidence.

In addition, revenue estimates can be expressed as ranges, so revenue pipelines—as well as profit forecasts—can be understood. Investment decisions can be made at preferred levels of risk while taking into account all the best knowledge available.

Besides an understanding of cost and revenue pipelines, business decisions also require an understanding of risk sensitivity. Risk assessments deliver such an understanding.

Business can benefit from risk assessment by making better decisions based on accurate information. You benefit from realistic forecasting and an understanding of sensitivity, and you can make management decisions by taking into account the best current knowledge of the future.

Conclusion

In itself, the process of performing a risk assessment can give project, portfolio, business a greater chance of success. Assessments lead to the expression of outcomes as ranges, the development of risk mitigation plans, and the ability to set contingency.

Organizations have to make sure that risk management part of portfolio, need to identify risks at defining process of portfolio, need to communicate with all stakeholders about risk, consider both threats and opportunity, prioritize risks on regular basis, constantly analyze risks, plan and implement risk response, register portfolio risks, track risks and associated tasks, risk ownership.

Organizations have to ensure all the portfolio management processes, plans, policies, and procedures in the light of PMI standards on portfolio management are in place

Book of Questions

By Elza Efendi • June 16, 2019
1. Question: A vendor developed an excellent quality deliverable. Since everyone liked it, you want to award the vendor for their efforts. What is the correct way to document this experience so it is beneficial for future projects in your organization? A: Share your positive experience with the vendor. B: Recommend the vendor to other departments in your organization. C: Recommend the vendor to other departments as well as your friends. D: Construct a Seller Performance Evaluation. 2. Question: Nathan is a new project manager who has been assigned a project which is in its early stages. He has been given the task to estimate the costs, but limited information is provided to him. Which of the following techniques will not be beneficial to him? A: Top-down Estimating B: Analogous Estimating C: Three Point Estimating D: Bottom-up Estimating 3. Question: You are using a chart/diagram/technique where you are displaying the amount of work you have completed against the amount of work you need to deliver on a certain date. Which technique are you using to track your project? A: Earned Value Analysis B: Iteration Burndown Chart C: Performance Reviews D: Trend Analysis 4. Question: Matt has been assigned a new project. As a part of the communication effort, he is documenting the resources, roles and responsibilities, skills required and the reporting relationship. Where should Matt document this information so that project communications can happen most optimally? A: Resource Management Plan B: RACI Chart C: Resource Calendar D: Communication Management Plan 5. Question: Tom and his project management team are taking over a project for their new client. The project was previously handled by another firm. As a part of clean-up effort, Tom and his team are currently inspecting the project deliverables. The team is recording the number and nature of defects found in these deliverables in a defect detail list. The defect details list in this case is an example of? A: Defect Log B: Work performance data C: Work performance report D: Work performance information 6. Question: You are in the initial stages of a project where you have to decide on which project methodology to use. You are in favor of the normal software development life cycle approach; however the SMEs want to do agile methodology instead. Which of the following is not a true statement regarding the generic life cycle of a project? A: Cost and Staffing Levels are low at the start B: Risk and uncertainty are greatest at the start of the project C: The ability to influence the final characteristics of the project's product is highest at the start of the project D: Risk and uncertainty factors do not decrease over the life of the project. It remains constant throughout the project 7. Question: Luis is the project manager. During the contract negotiation process with the selected vendor, Luis decides to issue a contact where he will pay the vendor a set amount for their service. Luis will not take into consideration seller's cost. What is the best description for this type of contract? A: FP-EPA B: FFP C: FPIF D: CPFF 8. Question: Jordan is using a control chart to determine stability of the process and its performance. After developing a new process, he deems that the stability and the performance of the new process is within acceptable limits, and that the process does not need to be adjusted. What are the upper and lower control limits usually set as? A: + / - 6 sigma B: + / - 2 sigma C: + / - 3 sigma D: + / - 1 sigma 9. Question: Your customer has asked you to establish the scope baseline within next two weeks. Your team is working towards it and is on track. Suddenly, a stakeholder reaches out to you and wants to include a new feature on the project. What should be your next step? A: Request the stakeholder to follow a formal change control process B: Reject the change C: Add the feature in your scope D: Do the impact analysis before issuing a formal change request 10. Question: Jill is at a senior position in the vendor management office. She only gets involved if there is major escalation. It so happens that the team is not happy with the way a vendor is currently working on the project. Jordey, another project manager reaches out to Jill to discuss the performance of the vendor. Which process is Jordey performing? A: Plan Procurement Management B: Control Procurements C: Conduct Procurements D: Monitor Risks 11. Question: One of the modules of Tim’s project is to create a social networking platform where the users are posting questions, writing blogs, and reviewing the comments of users. Which technique defines this type of scenario? A: Information Management B: Knowledge Management C: Expert Judgment D: Political Awareness 12. Question: You are a project manager. While calculating the estimate, you realize that you will need six resources for six months. You can only get four resources after negotiating with the functional manager and as per the organizational policy, you can hire two more every six months. As a project manager what will be your next step? A: Hire contractors in accordance with your organizational policy. B: Negotiate with functional manager to get the remaining 2 resources C: Talk to project sponsor to get more resources D: Don't do anything and request your assigned resources to fast track the project. 13. Question: While implementing the user interface for the webpage, Alan notices that the required color scheme is too gaudy and does not fit in with the overall look of the website. He decides to use an alternate color scheme that is more appealing to the eye. During testing, the testing team flags this change of the color scheme as a defect. But Alan,disagrees since this doesn’t have any negative implications on the functionality of the webpage. What is your view? A: Since this was a matter of UI expertise, an expert should be roped in for his opinion. Until, the expert gives his opinion on the matter the testing team should not have flagged this as a defect. B: Alan did not follow the appropriate change management process when deciding to change the color scheme. Thus, deviating from the original design. Hence, the testing team was correct in flagging this as a defect. C: This change was a simple matter of changing the color scheme. The change did not affect the functionality in any way. Hence the testing team should not have flagged this as a defect. D: Alan should have sent an email to the testing team informing of the color change he intended to make. Because the testing team received no prior notice, they were correct in flagging this as a defect. 14. Question: Your project is hit by an identified risk and you are in the process of making sure that the team is currently implementing the agreed upon risk response. What process are you currently performing? A: Plan Risk Responses B: Implement Risk Responses C: Monitor Risks D: Plan Risk Management 15. Question: You are working on a project where you have outsourced the work to a seller’s company. Based on your discussion with the seller, you are revisiting your project assumptions defined in the scope statement to check whether they are still valid or not. Which process are you currently performing? A: Monitor Risks B: Control Scope C: Validate Scope D: Control Procurement 16. Question: Paul is a project manager. For the last two weeks, he has been receiving lot of escalations from his stakeholders. After evaluating, he finds out that overall project risk has changed. Which process is Paul performing currently? A: Identify Risks B: Implement Risk Responses C: Plan Risk Management D: Monitor Risks 16. Question: Mark is a project manager for an automobile organization. He has to provide the duration estimates to the steering committee. He created the draft schedule after discussing this with the team; however he did not get a chance to conduct a final review before the start of the meeting. What is the best thing to do in such a scenario? A: Present the estimate to the steering committee as is and tell them that it may be wrong. B: Present the estimate to your senior manager only and then make a decision whether to present it to executive steering committee or not C: Show the estimate as a rough order of magnitude (ROM) D: Don't present it to the executive steering committee as it is not accurate.

What are the barriers to organizations implementing the organization strategy?

By Elza Efendi • August 19, 2018
Strategy & Organization In the fifth century BC, Sun Tzu wrote: "In peace prepare for war, in war prepare for peace. The art of war is of vital importance to the state. It is a matter of life and death. A road either to safety or ruin. Hence it is a subject of inquiry which can on no account be neglected… Know your enemy, know yourself and you can fight a hundred battles without disaster… The supreme act of war is to subdue the enemy without fighting." The future success of any company - whether it is a large holding company, a subsidiary, a start-up, or a public body - depends on how effectively the organization adjusts to new challenges and continuous change. What are the barriers to organizations implementing the organization strategy? Some of them I identified below, but I’m sure there are more: · Level of overall organizational maturity · Minor Internal Resistance for Changes of progressive improvement · People like to do things the way how they did it before · Age factor of employees · Organizational Structure · Clear defined roles and responsibilities · Poor communications · Governance Model · Clear understanding of Org strategy · Autocratic processes in Organization · Government Regulations · Market Changes/Dynamics · Competitors plans and actions · Legal and Regulatory Compliance · Fair of changes that people may lose their jobs or positions · Fair of increased business risks · No internal trainings how to use new processes and template documents · Not every department or division is adopting new processes and / or new templates at the same time · Poor prioritization of the changes – H/M/L · Leadership change during strategic changes · Not timely decision making · Poor Leadership · Same team working on Ops activities and projects · Understanding of risks associated with strategic changes (internal and external) · Selection of right projects at the right time · Corresponding business goals not aligned with new org strategy · Technological changes Achieving fundamental change in an organization is at least a 2 to 3 year process, but organizations often run out of energy or lose focus after 9 to 15 months. Each Organization in order to avoid barriers listed above should avoid the following mistakes during the implementation of the new organizational strategy. Starting too late · Pressure to act quickly undermines values and culture · Leaders take drastic steps quickly with no time to explore alternatives · Values about participation, involvement, or concern for people disappear · Cynicism grows No winning strategy · The best strategic change program in the world won’t do any good if organization doesn’t have a strategy for getting where it wants to go Fanfare · Too often organizations announce big strategic changes and new programs with big events and fanfare, but then very little actually happens · The initial energy and enthusiasm fades, specific changes are never identified let alone implemented, results aren’t realized, managers don’t adjust, or maybe something better comes along leading to a new ‘launch’ with new fanfare Employees hear from the media first · Journalists dig for information, and items can run in the media before employees hear about them · Middle managers look dumb and uninformed · Employees feel insulted and left out Failure to make a compelling and urgent case for change · Failure to create a strong sense or urgency causes a change movement to lose momentum before it gets a chance to start · Establishing a true sense of urgency without creating an emergency is the first objective achieved to overcome the routine of daily business Only focusing on the rational elements · Organizational change will be extremely difficult in most cases if managers rely only on making a case to the rational, analytical, problem-solving side of the brain · Instead, they must also make an emotional case for change and align the rational and emotional elements of the appeal · Before you can get buy-in, people need to feel the problem Not dealing proactively with resistance · Managing resistance to change is challenging and it’s not possible to be aware of all sources of resistance to change · Expecting that there will be resistance to change and being prepared to manage it is proactive step · It’s far better to anticipate objections than to spend your time putting out fires, and knowing how to overcome resistance to change is a vital part of any change management plan Lack of communication · Change management communications need to be targeted to each segment of the workforce, and delivered in a two-way fashion that allows people to make sense of the change subjectively Not enough leadership · Too many leaders focus too much on management and too little on leadership Ignoring current corporate culture · All change in organizations is challenging, but perhaps the most daunting is changing culture · When people in an organization realize and recognize that their current organizational culture needs to transform to support the organization’s success and progress, change can occur. · Do not under-estimate the status of quo culture · Culture eats strategy for breakfast, lunch and dinner Failure to understand and shape the informal organization · Organizations usually have networks and coalitions of people that are not visible on the formal Org chart. There networks and coalitions help shape opinion · They can either accelerate or retard change. Ignoring or circumventing these groups can result in actual resistance Not involving the employees · Leaders must actively involve the people most affected by the change in its implementation · This will help ensure employees at all levels of the organization embrace the proposed changes Over-reliance on structure and systems to change behavior · Structural and systems changes help create a new context and orientation. And they have the surface appeal of being visible and fast · But people do not become different just because you put them in a new context Failure to distinguish between decision-driven and behavior dependent change · Getting people to change their behavior requires a different mindset and a different set of leadership skills than making decisions about strategy Lack of skills · Change does not happen through goals and exhortation alone. Like any business operation, it also calls for the right skills and resources · Organizations often simply fail to commit the necessary time, people, and resources to making change work · Paradoxically, successful behavior change often demands the very skills the change is trying to create Focusing only on the long term · Large-scale organizational change is a long process · Break down your vision into smaller short-term goals, and communicate short-term successes at each opportunity Failing to plan small successive successes · An important part of sticking to the vision is to create opportunities to achieve smaller goals along the way · These small successes will not only work directly toward achieving the desired change, but will create positive feelings of accomplishment and the drive to pursue the next goal Assuming that change is complete once initial goals are achieved · If you declare victory too soon, the focus will be taken away from your efforts, and all traces of your hard work could soon disappear · Successful companies consistently re-evaluate their change efforts to determine where area can be improved, such as employee development and retention, new projects and new systems and structure Conclusion: Strategy is an art and science, and metaphorically, confining ocean into lake or expanding galaxy into universe is her greatest art and defining what is real and what is not real is her pure science.

Are all projects suited for all organizations? To rephrase this question, can organizations do internally all projects (means use internal resources) or they should outsource?

By Elza Efendi • August 19, 2018
Questions we have to ask: How much organization can outsource? What to do if not enough skills in house? Are we adding risks to projects by outsourcing to external vendor? How we will manager vendor? What is a culture in organization? Can people accept another company is working on project? Can people working as a team (vendor and company)? How can we make sure project will be successful? To outsource, or not to outsource: that is the question . Is the organization better served by outsourcing their project work to experienced vendors, or would they do better to build that expertise in house, and rely on vendors mostly for fieldwork? Some organizations do nearly everything in-house. Others act more as consultants or coordinators, managing the process between their internal client and the external vendor handling most of the actual project work. Still others rely on both models, and choose which direction to go on a situational basis. Staffing Issues - The decision of whether to outsource most of the project work often comes down to the overall company philosophy about staffing. Some companies making decision such as “One of our core values is keeping costs at a minimum. The thinking is that we could staff minimally, and then find outside resources to do the work, and pay ‘outside’ expense dollars, instead of paying salary and benefits for a larger internal staff.” Companies are thinking that this approach is more economical, as they didn’t have to pay salary and benefits for a large staff. Another advantage of outsourcing is that if budgets need to be slashed during a tough financial period, it’s much easier to cut project budgets than to lay off employees – and when the financial crunch eases and budgets are back to normal, it’s also much easier to pick up where you left off with external vendors than it is to go out and find new staff. Building Intellectual Capital - Although staffing issues would seem to point to outsourcing as the way to go, there’s an alternate side to that: one real benefit to having in-house SMEs is that they build intellectual capital in the organization. That’s the idea that increasing the knowledge level of employees is just as valuable as making capital expenditures on equipment or materials that enhance productivity and efficiency. When the organization has a staff of experts they serve as consultants who apply their growing knowledge to serve the company in ways that aren’t directly related to projects. This capability is not as readily available when much of the project work is outsourced. Who Has the Expertise? Internal SMEs and external vendors will both have areas of expertise. The question is what kind of expertise is more important. When you link up with good vendors, you get their knowledge and expertise that they have built up by working across different industries. I think that’s really valuable. I am usually so impressed with the scope and experience a really good outside vendor brings to the project – better vendors will add a lot to the project through that experience. Good vendors can apply things they have learned from other clients (techniques, not information) to make a project run more efficiently and more effectively. But there is a trade-off. It is unlikely that a vendor will ever understand a client’s situation as well as that client’s own employees does. The major benefit is the understanding of the organization, and the ability to translate the data into strategy that addresses the business problem. Vendors generally won’t have this ability as strongly as internal consultants. The vendor won’t understand enough about your business, or they don’t know the subtle nuances of interpretation, or the organizational changes that are driving a decision. There’s no perfect world. With outsourcing we get a broad range of experiences that usually aren’t available internally. With internal work, we get a deeper knowledge of our organization and its needs. Who is perceived to have the expertise? While one question is whether or not outsourcing a project brings greater expertise to that project, a completely separate question is how the internal client perceives the work of internal experts versus external vendors. In some organizations, internal consultants are respected for their knowledge of the company and its goals. Stories about employees who leave to become consultants, and suddenly are perceived as experts – even though what they are saying as a consultant is the same thing they were saying six months ago as an employee. It is a fact that in some organizations, the recommendations of an external consultant carry far more weight than those of an employee. The key is to know the organization you’re working for, and the people involved. Capacity, Flexibility, and Emergencies - Outsourcing is also a trade-off when it comes to time use. Doing project work internally means your organization can set priorities more easily. With internal work, the competition for the staff’s time is from other internal projects. With a vendor, the competition is from other clients, and sometimes this means lack of availability. Having more than one vendor who can do a certain kind of work will help countermand this, but it is still entirely possible that all the vendors you use for multivariate analysis could be booked solid at any given moment. At the same time, with the occasional exception, outsourcing still provides greater overall flexibility. When four big projects come up, you simply spend more money to hire vendors to handle the work. You could give all four projects to one vendor or contract with four different vendors. One quarter you can outsource $10,000 worth of work; the next, $200,000 – all while staying at the same staffing levels. Although vendors don’t always like it when clients think this way, the simple truth is that it’s also easier to get a vendor to work the whole weekend than to put that expectation on a staff member – because vendors often have less of an option to say “no”. In doing work internally, prioritize what’s important for the corporation, and then make a decision on what can be done internally and what can be done externally. Finding the Right People - Whether you’re looking for the right staff member or the right vendor, it can be a challenge to find competent resources for your research needs. Organizations that do a lot of outsourcing often have three to six vendors they might rely on for any given type of work. If one goes out of business, or a key person leaves, there are still other vendors available (and hundreds more who would like to have a shot at the work). With internal project work, if a key staff member leaves, it’s a different story. It means organization has lost intellectual capital it has built up over the years (and maybe lost it to a competitor). It means money to find, hire, and train a new person. It means other people have to take up the slack (if possible). And it could mean going weeks or months without a qualified staff person in that position. Particularly right now, recruitment is very difficult because of the tight labor market. Vendors, on the other hand, are easier to find and hire than employees, and easier to fire if things simply don’t work out. Control Issues - Outsourcing can mean somewhat less control over the work than you would have with an internal staff. You can aim to have work done the same way each time, and shore up the weaknesses of a particular employee in any given area. Vendors, on the other hand, often have their own way of doing things, and it can sometimes be difficult for them to adjust to your exacting needs. Some vendors also see themselves as experts who are there to guide the client, which means it can be a battle getting things done the way you want them. Having internal staff doesn’t solve this problem, but it gives greater daily control over these issues. Conclusion Outsourcing only works well if there is some internal control and value-added services provided by internal staff. There’s a lot of work in integrating all of the pieces together – and if you can’t do that, it’s not going to work.