I’m a certified Project Management Professional (PMP), and one of the core competencies of being a PMP is knowing how to manage risks in a project. If you haven’t already figured it out,
Nothing ever goes according to plan.
You can’t make and execute the perfect plan, ever, and while you might find that discouraging, it really isn’t as there are a number of ways to reduce your risk of failure. Failure is at the root. Nobody wants to fail, even though you can learn some valuable lessons failing. In some software development methodologies there is the concept of “failing fast”. It’s a build a little, test a little approach that seeks to uncover failure early, if it exists, and then fix the failure or halt the project before tons of money is spent on a faulty idea. Up to 70% of federal IT projects are considered failures for one or more reasons. The project either went way over budget, did not meet specifications, or was not functional, or all three. One notable failure was the FBI’s Virtual Case Manager which was a half a billion dollar failure. Tens of billions of dollars are spent, and 70% are failures. How would you feel if you failed 70% of the time. This was the driving motivation behind “failing fast”.
I want you to be Risky.
In investing there is the risk/reward ratio. The riskier the investment, the greater the return or interest you as the investor will receive if it is successful. Avoiding risks is a way to stay poor, and I’m not just talking about money. You and I need to take risks in relationships, in business, and in life in general if we are going to have anything to show for it. Nothing ventured, nothing gained. No pain, no gain. The key is to not be stupid with risks, but learn how to manage them.
Managing your Risks.
Hedge funds exists as a financial risk management tool. Say a large institutional investor puts a lot of money in oil futures that oil will go up in price in the next six months. But, just in case it doesn’t, they buy a hedge fund product that is somewhat like an insurance plan, that pays out if oil goes down in price. They have now hedged against a potential failure in their investment so that they won’t lose it all. Construction project managers often who are using union laborers on a multi-million dollar project can actually buy insurance that will pay out if the workers go on strike to overcome financial losses due to delays in finishing the building. You can learn to identify and hedge your risks too. It’s not hard.
The Risk Register.
There is a simple way to identify, measure and monitor risks in anything you do. It’s called a “risk register”.
There are just five columns. Risk, Likeliness, Cost, Score and Action. Just make a list on paper or a spreadsheet and list down any risks you can think of in what you are doing. Then rate it for Likeliness to happen with 1 being least likely and 5 being most likely. Guesstimate what it will cost if it does happen, not in dollar terms, but with 1 as least expensive to 5 as very expensive. The score is likeliness plus cost. Action is a list of things you can have ready to do if that risk actually happens. All you are doing is taking any identifiable risk and Avoiding, Accepting, Reducing or Transferring that risk in the Action column.
Normally, you would focus on risks that score 3 or higher. The lower rated risks won’t really have much impact if they happen. The nice thing about this strategy to managing your risks is that you have a plan in place before anything goes sideways, and, if you are getting all 5’s then you might want to re-evaluate the whole plan before you even start. Reviewing the risk register periodically can also help you to fail fast and pull the plug on the whole project before you bleed out financially.
Doing this kind of simple risk management can give you a lot of peace of mind as well as boldness in approaching a new project. This tool is a fear killer. Fear is one of the biggest reason people won’t take risks and live a shallow and boring life.
Don’t limit it to just finances or business. Use this for relationships, and personal projects too. If you are considering a long term relationship, then do a risk register. If you are considering a move, career change, or starting a side business, then do a risk register. Ideally you will get this in your head so that you can evaluate risks on the fly as you go through your daily life.
Have fun! Take some risks TODAY!
Men are wired to be risk takers. You are sad and depressed if you aren’t out there taking risks. Don’t be a sad little man. Have some fun and push the envelope.