Risk and Reward: Using Risk as a Lever to Drive Project Execution Outcomes
Risk is a term with a lot of implications. At its most basic, risk is the possibility of something unexpected happening. But it’s also understood that risk and reward are closely related. Those willing to accept some risk may realize outsized gains as they’re rewarded for participating in a market or venture few others are willing to explore. When we think about project execution, we think about risk in the same way – as a tool for increasing your leverage – similar to how we might think about debt. In the same way that we may look to debt financing to reduce our direct capital outlay for a new plant, we can think about accepting risk in some areas of a project to ensure the outcomes we want in others (such as improved schedule or reduced project cost). At Next Rung Technology, we believe people too often avoid the topic of risk when planning their scale up, when the fact is: open and positive discussions of risk are critical for organizational health through the ups and downs of technology commercialization.
Many startups live and die by being the first to market, so it makes sense that they might be willing to tolerate some risk of budgetary overrun if they can keep to the schedule. Or maybe they're in a market where VC funding is drying up, thus they are willing to sacrifice some scope to demonstrate a minimum viable product, in the interest of holding on to additional cash until they can raise another round.
Risk is a tool, not a mistake to avoid.
Plan for it! Measure it! Use it!
In each of these examples we challenge the adage that you can have things good, fast, and cheap, but you must pick two. When we approach project execution with our clients, we want to understand what all the project levers and priorities are, and how we might structure a plan to achieve requirements in quality, schedule, budget, scope, resources, risk, and any other critical constraints.
It’s worth mentioning that risk mitigation is a broad category and set of skills that need to be trained and developed just like any other professional skill set. And for better or for worse, the school of hard knocks is where most project and R&D managers learn those skills. But if risk is a lever that we can use to drive project outcomes that we want, how do we start to understand it and use it to our advantage? Let’s look at ways to identify and evaluate risk so that we can consider how to manage it.
Before we dive into the details, let’s start with an overview of the critical tool in managing risk in any setting, “the Risk Matrix”, by looking at an example from the process safety world.
At its core, the risk matrix provides us with the framework to assess the impact and probability of an event occurring. In the case of process safety, we’re concerned with the frequency or likelihood of a particular event occurring, and the severity if it does. For example, what could cause misdirected flow in our pilot plant? What’s the likelihood of loss of containment from incorrect piping setup? And what could happen if this occurs? In this case, we may decide to mitigate the risk of incorrect piping setup by hard piping critical, high risk areas of the plant like steam distribution and CIP. But we may be willing to accept the risk of media overflow because of its low hazards.
At the end of the day, a systematic risk assessment with objective estimates of impact and probability is key to recognizing, evaluating, and dealing with risk. And importantly, the approach to a probability based risk assessment can be applied to any part of the project – from budget to schedule to quality.
Program-Wide Risk Mitigation
One of the most valuable opportunities to address risk within a project is before it starts. Early identification of schedule risks due to uncertainty in lead times (such as from the Covid 19 pandemic) or technical risks can give you and your company the opportunity to plan for risk mitigation where it’s most needed. Early design activities can proceed for a small percentage of the total project cost to pull forward long lead procurement and move risk off the critical path. Process development programs can be devised to address critical challenges in purification before uncertainty leads to overdesign or missed CTQs.
However, we understand that it can be daunting to know where to start. What programs and activities deserve a close look when you’re thinking about growing your business and/or scaling your technology? On the technical side, we like to get started with a thorough review of technology readiness with our step by step Risk Readiness Assessment. Our unique framework not only provides a standard way to understand the maturity of your processes, it also supports sharing across your organization in an objective, non-confrontational way. Similar Risk Readiness Assessments can be applied to organizational, IP, and/or schedule risk. Time and time again, we have found our assessments to be critical for scale up success.
At Next Rung we help a lot of our clients develop a broader understanding of risk in their business and technology by facilitating and leading a comprehensive Risk Management Program that engages key stakeholders so that everyone is informed.
Together, we help our clients form a plan to prioritize, mitigate, and accept risk based on what makes the most sense for each unique situation.
Reach out if you’d like to learn more! We would love to hear about what you’re working on.