Sunday, December 18, 2011

Risk or Opportunity management?

What's going on here?

  • Venture capitalists put their money at risk and successfully backed a start-up called Facebook
  • Jon Corzine took a risk on European soverign debt and went bankrupt, but John Paulson and George Soros took similar risks during the financial crisis and made billions.
  • General Bernard Schriever couldn't risk a failure of the fledgling ICBM program, so he developed the Titan and the Atlas concurrently using different designs
  • General Samuel Phillips couldn't risk missing a presidential schedule for the moon landing, so he ordered an unprecedented test program to flight test the Apollo multistage rocket as one stack rather than test each stage independently.
Are these examples of risk management, opportunity management, or some combination? And, by the way, is there a difference, and even so, does it matter?

In other words, is "taking a risk" risk management, or opportunity management?
And, is this posting about counting angels on the head of a pin, or is there a worthy point to be made?

Actually, I say there is, in this respect:
  • Taking a risk is usually understood to mean taking advantage of an opportunity, an event out of the ordinary, or an event that is off the strategic path. If it works out, the "risk takers" get rewarded, in some proportion to the risk taken: more risk, more reward. If it doesn't work out, either the risk takers are punished, or at the least not rewarded.

  • Managing risk is usually understood to mean preventing an untoward outcome that might derail a course of action or unfavorably impact an outcome.  If it works out, the risk managers are rewarded according to the project success, not according to the impact avoided. In other words, successful failure avoidance is not rewarded directly; reward is only indirectly through whatever incentive was placed on project success.

And, in the project domain, project managers, as a matter of routine, are expected to be successful. Rewards are modest, given the expectations. Stakeholders who "take a risk" and are successful are usually much more handsomely rewarded.  This is not a sour grapes argument, just a discourse about risk and reward vs. opportunity and reward.

Dr Edmund Conrow is an academic, an author, an advisor to defense programs, and a skeptic of opportunity management (at least in the project domain, and domains are important because some concepts don't port well between domains).

But, Conrow provides us with a simple but useful definition of opportunity management: "In simple terms, it's a change in direction of the status quo that will leave us--we believe--in a better place than is currently anticipated". And, he says, to purse an opportunity requires "....allocation or reallocation of resources...".

I agree with Edmund: opportunity is a change in direction; and my corollary is: risk is a threat to not changing direction.

In an article written in 2008 in the DoD publication AT&L for March of that year, entitled "Opportunity Management", Conrow disses the idea that risk and opportunity are more or less opposite sides of the one idea that there are events in the life of a project that will push it off track--risk being a unfavorable outcome, and opportunity being a favorable outcome.

Conrow is not an opportunity denier; far from it. He advocates opportunity management in the sense of a search for alternatives, but not after the baseline is committed. Once committed, the baseline is to be managed to hit its targets until some formal baseline change is initiated and approved.

But, is a planned make/buy decision that is deferred until circumstances are more clear an exercise in opportunity management or risk management?

He sets aside, rightly so in my mind, the idea that project managers deliberately ignore four opportunity possibilities advanced by opportunity advocates, saying most competent managers maintain 360 awareness of these types of opportunities:
  1. Opportunity to improve the baseline when there are otherwise no risks
  2. Opportunities that are the inverse of a risk to baseline
  3. Opportunites that arise from the interactions of risks to the baseline, and
  4. "Pure opportunites" unrelated to, or different from, the baseline plan
Bottom line: taking a risk and managing risk are different; they both belong in the project manager's domain. The former is a change management agenda; the latter is a baseline maintenance agenda. There's room for both, as there should be.
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