Case Studies
(Don't Let These Happen to You)
Case I
For several months Bill had been working with the Risk Management Board for a multi-million dollar satellite program at a large aerospace company. The purpose of the Board was to oversee the risk management activities on the program. Potential risks were to be presented to the Board, the Board was supposed to assess the likelihood of occurrance and quantify the cost and schedule impacts of these risks, the Board was supposed to coordinate and support mitigation activities and contingency planning for these risks, and the Board was supposed to monitor the effectiveness of the mitigation and contingency planning.
For the most part, however, what were presented to the Board were not risks but problems that had already occurred. The Board oversaw the problem-solving activities, continually trying to get a severely over-budget and behind-schedule program back on track. These efforts were not notably successful.
One day an engineer was scheduled to present a new potential risk for the Board to consider. All of the Board members gave their reports on their problems and left the meeting to continue their problem-solving efforts, leaving only this one engineer, the Board Chairman, and Bill in the room. The Chairman told Bill that he was welcome to leave as well because he had not had the opportunity to read any of the background on this potential risk, and because he might not find the ensuing discussion of interest; nevertheless, Bill chose to stay. It turned out to be a good choice.
The engineer presented the following case:
The thermal control system was designed to mate to the satellite along a large, flat surface; the mating surfaces had to be in intimate contact to achieve the proper heat flow-through. If the surfaces were not flat enough, a thermally-conductive epoxy would have to be used between the surfaces. Evidently applying the epoxy and assembling the components was a very tricky operation that could result in serious damage if it were done incorrectly. Even without damaging the satellite, the time required to learn to do the assembly would delay the program more than one month, at a cost of more than one million dollars.
Before the machining of these mating surfaces was complete, the engineer wanted to spend about twenty-five thousand dollars to practice assembling test components using the epoxy interface, so that they could proceed without delay to the program if the epoxy proved necessary, and so that they would have some experience in using the epoxy - experience that would help them avoid damaging the satellite.
As far as Bill could tell, this was the only example of true risk mitigation that the Board had ever encountered, and the Chairman thought that it would not be interesting to someone who specializes in risk management. The engineer described a true risk: whether the surfaces would be flat enough would occur in the future, it was uncertain, and if they were not flat enough there would be cost and schedule consequences to the program. What the engineer wanted to do was classic risk mitigation: he wanted to spend $25,000 on insurance against a loss of over $1,000,000.
Fortunately, the Board approved the expenditure.
Do not let this type of situation happen to your company. Learn the difference between problems that have already occurred and risks that may occur. Learn to anticipate potential problems before they become actual problems; learn to identify risks. Learn what can be done to mitigate risks, or to plan contingencies. Let Risk Mitigation Associates help you in all of these areas, and more.
Case II
At a recent conference that Bill attended, one of the presenters described the following situation at a company at which he had worked:
Project managers were rewarded for correcting the problems in troubled projects. A manager who took a project that was on its deathbed and restored it to good health could anticipate a sizable bonus at his next performance review. Corporate management viewed this as the proper way to motivate their employees to exceptional performance.
One project manager at this company fully understood this incentive system and, as should have been expected by upper management, employed it in his own best interest. He would covertly allow his projects to deteriorate slowly until they were on the brink of cancellation, then, with obvious, overt, heroic effort, would resuscitate them. His herculean actions - of which he made certain that his supervisors were aware - earned him substantial bonuses time and again. Unfortunately, upper management finally learned that he was the cause of the problems that his projects suffered, and he was summarily dismissed.
Bill's reaction to this presentation was twofold: Good for the manager, and shame on the company.
Good for the Manager
Upper management at this company made it clear to the project manager that it was in his own best interest to rescue a troubled project. If upper management didn't see fit to provide him with a troubled project, he had to provide it for himself. The manager showed perspicacity and ingenuity in managing his projects in such a way that he could simultaneously achieve the company's goal (an ultimately healthy, successful project) and his own goal (financial reward).
Shame on the Company
Upper management at this company failed to ensure that the project manager's best interest coincided with the company's best interest. If the company wanted to have projects that were healthy throughout their lifetimes, then their incentives to the project managers should have been geared toward keeping projects healthy. Managers whose projects never faltered should have received greater bonuses than managers whose projects suffered and later recovered. Furthermore, they failed to recognize the obvious skill that this manager possessed; rather than firing this manager the company should have changed its incentive system and let this manager flourish in an environment that would simultaneously benefit the company.
Do not let this type of situation happen to your company. Learn to evaluate your company's goals, learn to evaluate your employees' goals, and work to ensure that they coincide. Let Risk Mitigation Associates help you in this area, and more.