Example A threat resolved creates an opportunity

The team responsible for a UK combined cycle gas turbine electricity project were concerned about the threat to their project's completion time associated with various approvals processes that involved important novel issues. Gas was to be provided on a take-or-pay contract in which gas supply would be guaranteed from an agreed date, but gas not required from that date would have to be paid for anyway. This made any delay relative to the commitment operating date very expensive, the cost of such unused gas being in effect a project cost. The only response identified was to move the whole project forward three months in time (starting three months earlier and finishing three months earlier) and arrange for standard British Gas supplies for testing purposes if the project actually finished three months early. Using British Gas supplies for testing was a nontrivial change, because its gas composition was different, requiring different testing procedures and gas turbine contract differences. This response would deal with planning delays, the motivation for first suggesting it, but it would also deal with any other reasons for delay, including those not identified. Further, it provided a very high degree of confidence that the combined cycle gas turbine plant would be operational very shortly after the main gas supply initiation date. But, of special importance here, this response made it practical to maintain the strategy of using British Gas supplies for testing, but move the whole project (this time including the main gas supply availability date) back in time (starting and finishing later) in order to time the take-or-pay contract date to coincide directly with the beginning of the peak winter demand period, improving the corporate cash flow position. The opportunity to improve the cash flow position in this way, while maintaining confidence with respect to the take-or-pay contract for gas, was deemed to be a key impact of the risk management process. The search for a way to resolve a threat was extended to the identification of a related but separate opportunity, and the opportunity was the key benefit of the process.

These two examples illustrate the importance of opportunities as well as threats, the first in cost terms at an activity level, the second in cost and revenue terms at a project level. In the first example, if the implications of good luck are not seized and only bad luck is captured, the accumulated effect is reasonably obvious once the mechanism is understood, and it should be clear that this applies to all activities in all projects. The second example illustrates the benefits of creative, positive thinking, which looks beyond merely overcoming or neutralizing a problem to associated opportunities. This aspect of problem solving is more subtle and is not widely understood, but it can be very important, in direct terms and from a morale point of view. High morale is as central to good risk management as it is to the management of teams in general. If a project team becomes immersed in nothing but attempting to neutralize threats, the ensuing doom and gloom can destroy the project. Systematic searches for opportunities, and a management team willing to respond to opportunities identified by those working for them at all levels (which may have implications well beyond the remit of the discoverer), can provide the basis for systematic building of morale.

In any given decision situation both threats and opportunities are usually involved, and both should be managed. A focus on one should never be allowed to eliminate concern for the other. Moreover, opportunities and threats can sometimes be treated separately, but they are seldom independent, just as two sides of the same coin can only be examined one at a time, but they are not independent when it comes to tossing the coin. Courses of action are often available that reduce or neutralize potential threats and simultaneously offer opportunities for positive improvements in performance. It is rarely advisable to concentrate on reducing threats without considering associated opportunities, just as it is inadvisable to pursue opportunities without regard for the associated threats.

Recognizing this, guides published by the US Project Management Institute (PMI) and the UK Association for Project Management (APM) have adopted a broad view of risk in terms of threats and opportunities. Their definitions of risk are very similar, as follows:

Risk—an uncertain event or condition that, if it occurs, has a positive or negative effect on a project objective—PMI (2000, p. 127).

Risk—an uncertain event or set of circumstances that, should it occur, will have an effect on the achievement of the project's objectives—APM (1997, p. 16).

These widely used definitions embrace both welcome upside and unwelcome downside effects. In spite of this, there is still a tendency for practitioners to think of risk management in largely downside, threat management terms (a tendency that the authors are not always able to resist). It is important to keep 'beating the drum' to remind ourselves that we are dealing with the upside as well as the downside of uncertainty, with a balance appropriate to context. Even in a safety-critical context, when the downside has clear priority, it is a serious mistake to forget about the upside. Hillson (2002a) explores alternative definitions of risk with a focus on this issue, and Hillson (2002b) explores the trend toward a greater focus on opportunity management.

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