Monday, February 17, 2014

70-30 and 90-10

A lot of project work is bid and won competitively, in effect beating out the other project team that wants the work.

Fair enough.

But, how do you win? How about this:
Bid the job with only a 70% confidence that you can do the job for the price... thereby taking a 30% risk that the actual cost will be higher (How much higher? You probably don't know).  
Ok, sometimes that's what it takes to win; I get it. But then, if you win, you might be heard saying: "OMG, what do we do now?"

But the worst is when the sponsoring executive says: Congratulations! Now, do the job for 90-10!

Translation: "Give me a project plan that brings the cost in for less than 10% risk that it will be higher than bid." (How much less: it probably doesn't really matter ... except: your bonus -- and perhaps your job -- only depends on not overrunning the cost)

Now with this scenario, we have the classic "project balance sheet" case:
  • Sponsor's side of the balance sheet, top down: 90-10 cost confidence required of the PM
  • PM's side of the balance sheet bottom up: 70-30 on cost; so the only way to obtain balance is to take a risk.

And, in the best traditions of risk manage, "taking a risk" doesn't mean listing it on a register and then just standing around looking at it. Taking a risk means: Do something to defeat the forecast! That's the project manager's mission:
The project manager’s mission is to manage assigned resources to deliver the value expected, taking measured risks to do so

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