Risk management

The Solomon R. Guggenheim Museum Bilbao is widely regarded as one of the great buildings of the late twentieth century and it has played a big part in transforming the fortunes of one of Spain’s biggest cities.  Its startling design could have led to the kinds of cost overruns, delays and poisonous disputes that plagued similarly ambitious cultural projects like the Sydney Opera House.  How did the team of sponsor, architect and builders work together to avoid such a fate?

Managing risk is about judgement as well as measuring

Risk management is defined by project expert Jeffrey Pinto as ‘the art and science of identifying, analysing and responding to risk factors throughout the life of a project’.  That ‘art and science’ bit is important; managing risks successfully calls for imagination and judgment as well as statistical models and strict processes.

Risk management begins with identifying what risks the project could face.  Ways to do this include asking experts, drawing on experience, using team based assessments and applying idea generation techniques.  Risks are analysed so that they are precisely defined and their initial probability of happening, and impact on the project if they do happen, are assessed.  Next comes risk planning.  For the more significant risks, mitigation strategies are devised which are aimed at reducing the probability or impact of the risk in the definition or planning phases.  If the risks are really significant then contingency plans are put in place, defining what to do if a particular risk occurs.  Finally there is risk administration.  This continuous process monitors the status of risks, and ensures the organisation is well-prepared to respond to any risk if it occurs.  It also makes sure that the organisation is constantly aware of new risks, is assessing them and planning how to respond to them.

The risk management sequence

The risk register (or PI table)

Risks are managed within a risk register which includes administrative information like when the risk was raised, its code number and what mitigation actions are being used to deal with it.  Every risk must have a named individual as the risk owner.  A view is taken of current probability of each risk occurring and the potential impact if it does.  Mitigation approaches are defined, and for the more significant risks contigency plans are described for what to do if the risk event actually happens. The emphasis on probability and impact means this is often called the PI table.

Risks with very low probabilities, but very high impacts, have the potential to be hugely destructive if they occur.  A risk can either grow in probability or impact if it is not dealt with or diminish if it is actively managed properly.  With every risk, the aim is to drive down the probability and impact and ultimately out of the project entirely.

Main source

Poulakidas, G. (2004). The Guggenheim Museum Bilbao. US: Children’s Press.