Tuesday, June 10, 2008

Risk Analysis May Lead to Changes

Many project managers view changing course in the middle of a project as the last thing they want to do, but after performing ongoing risk analysis, it may be the best course of action. Project managers use risk analysis to increase the probability of project success. Experienced project managers know to expect unknowns, good ones prepare for the unknown and are able to adjust when they arise.

Risk analysis steps include identifying the risks, developing responses to each known risk, establishing reserves to deal with unknown risk, and continuously reviewing and communicating risk status to the team.

During a recent project a major unknown risk arose in the middle of the project: a manufacturing plant had some serious, previously unknown constraints to the new product line. The welding operation was the constraint, and the team discovered the manual process required too much manpower and floor space to adjust effectively. In essence, the new product did not fit in the operation's "sweet spot" for manufacturing. As this operation was in China, it was growing fast to support local demand, and this export product was going to use up constraining capacity, causing a problem.

The team analyzed options. Floor space could be allocated, people added, and process flow could be adjusted in the new factory, but the local team did not believe this would effectively resolve the capacity constraint. There was another factory where the product could be made on automated equipment for a slightly higher overall cost, with lower transportation cost to offset much of the higher labor cost. The intangible cost of uncertainty tipped the balance toward factory 2, the more local factory, and we made the recommendation to change plants to the project sponsor.

The sponsor was loathe to change plants in mid-course. He felt the change was a major risk, but after careful consideration, agreed to make the change. The project was reconfigured to manage the new product in plant 2, and the adjustments produced an on-time delivery to customers and a successful overall project.

What would have happened if we had left the product in China? We do not know, but we do know the project launched successfully after making the change. Risk analysis is dealing with probabilities and estimates. We only know the results and can document what worked. Effective risk analysis supported a major project re-alignment supporting a successful launch.