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S U M M A R Y


DIARY: July 8, 1997 03:14 PM Tuesday; Rod Welch

Article on risk management and leadership to apply it effectively.

1...Summary/Objective
2...Risk Management on Leadership Process
.....Project Management is Management of Risk
.........Financial Calculation of ROI
3...Risk Oriented Environment, New Fad
4...Market Conditions Impact Risk Assessments

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1...for anticipated risks, and to explain the basis for increased cost

CONTACTS 

SUBJECTS
Cost/Benefit of Better Communications
Market Fears Being First to Use New Methods
Communication Manager Fewer People More
Cost Benefit - Increase Usefulness, Reduce
Level of Effort, Calculate Cost Benefit
Overhead Managers are Unproductive
Risk Management, Contingency Analysis, Value at Risk

1409 -    ..
1410 - Summary/Objective
1411 -
141101 - Follow up ref SDS 23 0000, ref SDS 22 0000.
141102 - ..
141103 - "Projects" are a continual "risk management" process but there
141104 - is not a lot of liturature on this process.  A means is needed to
141105 - quantify the amount of management needed and the anticipated return on
141106 - investment (ROI) based on character of the work.  Author advocates
141107 - leadership to support risk taking by protecting against reprisals when
141108 - risk taking fails.
141109 -
141110 -     [On 970709 contacted Tom Landauer for studies on communication
141111 -     errors ref SDS 26 0000.]
141112 -
141113 -     [On 970711 began calculation to quantify risks as a function of
141114 -     communication, ref SDS 27 0000.]
141115 -
141116 -
141117 -
141118 -  ..
1412 -
1413 -
1414 - Progress
1415 -
141501 - Risk Management on Leadership Process
141502 -
141503 - Author says risk management is a process that is built into running a
141504 - project, but the level of guidance devoted to the subject available in
141505 - the literature and available within organizations is extremely
141506 - limited. ref OF 7 4729
141507 -
141508 - Projects can be viewed as the continual process of identifying and
141509 - quantifying risks: deciding what may happen, what effect it will have
141510 - on the project, what will be done about it, acting upon it, shown at
141511 - ref OF 7 3957.
141512 -
141513 -      ..
141514 -     Project Management is Management of Risk
141515 -
141516 -     The research is beginning to suggest that project management is
141517 -     by definition a process of managing risks.  Every decision taken
141518 -     is based on assessment of the effort required based on assessment
141519 -     of future conditions, and therefore the outcome poses a risk.
141520 -
141521 -     This same point is made in the old version of the PMBOK by Max
141522 -     Wideman at ref SDS 19 8499.
141523 -
141524 -     Author cites lack of attention given to risk management in the
141525 -     liturature, ref OF 7 4729.  Possibly the level of treatment
141526 -     reflects the fact that project management covers subjects aimed at
141527 -     managing risks, e.g., cost, schedule, quality control; however,
141528 -     these subjects are not presented as part of risk management.  The
141529 -     author of the article on the role of leadership in supporting risk
141530 -     management, argues strongly against "padding" detailed accounts in
141531 -     an estimate, ref SDS 24 line 136.  However, this overlooks the
141532 -     fundamental duty to recognize the difficulties of the work and all
141533 -     of the factors that will impact the cost of performance.  That
141534 -     process is risk management.
141535 -     ..
141536 -     So a major objective or need for an effective risk
141537 -     management process is to identify tasks that differentiate generic
141538 -     risk management from the stuff managers do in pricing detailed
141539 -     portions of the work.  One role of "risk managment" should be to
141540 -     identify the portion of unit prices that are increased to account
141541 -     for anticipated risks, and to explain the basis for increased cost
141542 -     and the information that indicates the potential for savings or
141543 -     additional expense.  This information can then be assessed in
141544 -     determining the attractivenss of the undertaking as reflected by
141545 -     the profit margin, and also it provides focus for management to
141546 -     take prudent risks in performing the work to realize greater
141547 -     savings or avoid risks of loss.
141548 -
141549 -     Risk Management as a separate discipline becomes one of determning
141550 -     the level of insurance to acquire, and...
141551 -
141552 -
141553 -          ..
141554 -         Financial Calculation of ROI
141555 -
141556 -         Business decisions in most organizations are based on some
141557 -         sort of quantification of the risks and possible returns or
141558 -         rewards of a proposed venture. For example, many corporations
141559 -         will use variations upon the "discounted cash flow analysis"
141560 -         theme, where a certain key index such as IRR (internal rate of
141561 -         return) may need to exceed certain corporate "hurdle" rates.
141562 -         Corporations are adept at using a number of analytical
141563 -         techniques such as this to evaluate business decisions made
141564 -         under risk.
141565 -
141566 -         However, these powerful calculations are based on thousands
141567 -         of assumptions about costs and income, which themselves are
141568 -         not carefully analysed for risk of deviations.
141569 -
141570 -
141571 -  ..
141572 - Risk Oriented Environment, New Fad
141573 -
141574 - The TQM, reengineering motif is presented in the article to create a
141575 - distinction, ref OF 7 5793, and to create a target of change, similar
141576 - to the discussion with Jim Scott at Fluor Daniel on 960518. see the
141577 - record at ref SDS 2 1852
141578 -
141579 - This reflects the article reviewed on 970707 that suggested leadership
141580 - must support project managers in taking risks. ref SDS 24 1741
141581 -
141582 -
141583 -  ..
141584 - Market Conditions Impact Risk Assessments
141585 -
141586 - A good discussion of issus is at ref OF 7 5184.
141587 -
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141597 -