Every January the global movers and shakers pay upwards of $50,000 to get together at the World Economic Forum (WEF) in Davos, Switzerland. This year’s event saw business leaders from the likes of CH2M Hill, GE, Bombardier, Pepsico, RWE and SABIC, exchange ideas with senior politicians, academics, innovators and social reformers.
Feeding into the debate was the WEF’s annual Global Risks Report, which I’ve discussed in a previous blog post. The report includes graphical representations of how the critical risks facing the world are inter-connected. The risks identified, such as “prolonged infrastructure neglect”, “major systemic financial failure” and “pervasive entrenched corruption”, are likely to be big concerns for any business involved in major infrastructure projects around the world. But the real value for organizations of all sizes, would be if they could apply the WEF approach to risk analysis and reporting to their own businesses.
Unlike the World Economic Forum, businesses don’t have the luxury of calling on a panel of global experts to identify risks, but they have something better – their own frontline staff, partners and suppliers. These are the people closest to the real risks and the opportunities affecting the business. They are also the ones who understand them best. The difficulty has been to drive a culture where it is the right thing to do to call-out the risks faced and to provide simple mechanisms that will allow risks to be recorded easily at source. Technology is now available to do the latter. It’s now time for management to drive the cultural change needed.
To be able to extract the maximum value from the information, risk and opportunity data must be brought together into a single repository. Spreadsheets, the traditional tool used to record risks, are no longer up to the job. Important risks which could kill a project can be lost in the plethora of unsecure and unaudited spreadsheets scattered throughout the company and its supply chain. A single system is needed to pull everything together and the appropriate tone must be set from the top to drive adoption.
The London 2012 Olympics, a mega-project with an immovable deadline, illustrates how teaming a risk-aware culture with a single risk system across sub-projects and contractors is the way forward. This single database approach meant risks could be identified early by management, common risks spotted when they appeared in multiple places, and best practice mitigation actions shared.
Most importantly to a project with an immovable deadline, the overall picture provided meant risks could be mitigated at the single point that was the most appropriate and cost-effective. Without such an approach, management would not have the knowledge to support the decisions and promises being made, and different players in the project might duplicate mitigation efforts leading to cost overruns.
The other benefit of a single risk repository is that management can start to get visibility of how risks are interconnected. The latest analysis tools, such as ARM Risk Connectivity, can identify risk connections and produce highly visual representations of the ‘risk universe’ faced by the project or enterprise – just like in the WEF report.
Management starts to see the cumulative effect of risks that might have been deemed as relatively unimportant at the individual project level. For example, every project might identify the lack of skilled resources as a risk. They might also come up with the same mitigation actions, such as bringing in temporary staff. That’s fine if the risk happens on a single project but if it hits several projects simultaneously then there might not be enough skilled people available.
Spotting this skills shortage at a corporate or program level can lead to a more appropriate mitigation strategy which can be actioned at the right level in the business. For example, by instigating a training program; providing additional apprenticeships; or even the setting up of a special training academy. By taking such a view, Crossrail, currently Europe’s largest infrastructure project which is driving 21km of rail tunnels under central London, helped set up a specialized tunnelling academy to address its own need for staff and also for the longer term good of the industry.
The latest risk analysis tools can take you to the next dimension, far beyond the static Top 10 risk lists which have been traditionally sent to senior management. When you take spreadsheets out of risk management recording and reporting, you remove the tendency to look at risks as separate line items and open your eyes to real world of how risks are interconnected. With all risk and opportunity data in a single system you have the information resource which makes it easy to perform the sophisticated analysis that is needed on today’s complex projects – and to present the information in a way which makes it come alive.
Take a look and let us know what you think by commenting below or via Twitter: @ActiveRisk