Poor Management of Known Risks is Major Cause of Failed Projects

Guest Post by John Ayers (first posted on CERM ® RISK INSIGHTS – reposted here with permission)

Studies show most projects fail due to poor management of known risks. The known risks on a project are:

1. Scope
2. Schedule.
3. Cost.
4. Quality.

The question is how do we manage known risks better?  Known risks can be significantly mitigated with application of basic Project Management methods and processes.

This article will address scope. The other known risks will be addressed in separate articles.

Scope

There are several reasons for mis-managing scope. They are:

1. Contract scope not clear or misinterpreted
2. Contract unauthorized added scope
3. Poorly understood or unauthorized subcontractor scope
4. Hidden subcontractor scope risks

1.Contract Scope Not Clear or Misinterpreted

Contract scope is defined in the contract Statement of Work (SOW). In many cases, the scope statement is ambiguous or is interpreted differently than the customers intent. In other cases, the scope is not completely or clearly defined. Contractors may interpret the scope to their advantage to support a lower price. Typically, there are pre-bid meetings for contractors to ask questions which helps minimize scope misunderstanding. There is also an opportunity during the proposal fact finding sessions to clarify any questions on scope. In spite of these measures, contract scope understanding does happen and can impact project cost and schedule. One way to avoid this problem, is to review SOW with customer paragraph by paragraph and confirm you have the same understanding of the scope. Another step to take is to generate a scope matrix which compares contract SOW scope to your proposal scope. This is to ensure they match.

2. Contract unauthorized added scope

Formal added scope is authorized by a customer generated change order and is not disruptive to the project. Informal added scope occurs from hallway, or drinking fountain discussions between team members or made in meetings without the authority to do so. The participants agree to do additional scope (for example three trade off studies instead of the two proposed) without thinking about the fact they are not authorized to do so. It happens and is disruptive to the project. To mitigate this risk, it is incumbent on the project manager to educate and apply discipline to his/her team. Reviewing the company’s policies and procedures with the team on this subject would also be prudent.

3. Poorly understood subcontractor or unauthorized scope

This happens a lot and is disruptive to the project. The contractor generated subcontract SOW defines the scope. Many times, the SOW is interpreted differently by the subcontractor compared to the contractor intent. Unclear scope definitions occur more often than you like. The way to mitigate this risk is to review the SOW paragraph by paragraph ensure both parties have the same understanding.

In regard to unauthorized scope which happens often with a subcontractor, let me relate an example to provide some explanation for it. Assume you are in a meeting with your subcontractor and your lead engineer asks his/her counterpart if the subcontractor would perform two additional trade studies. This means the subcontractor is taking on unauthorized scope because the contract only required two studies not four. This is unauthorized added scope to the subcontractor.  As a result, the subcontractor will bill the contractor for the additional unauthorized scope causing disruption to the project.  The best way to mitigate this risk is to have the Subcontractor Manager at every meeting you have with the subcontractor. The Subcontract Manager should state at the beginning of every meeting that only scope approved in writing by him/her will be acknowledged by the contractor.

4. Hidden subcontractor scope risks

Beware of how your subcontractor implements the scope because it can impact your project cost and schedule. For example, one of my subcontractors underbid the support to a foreign bearing manufacturer. They had bid in their proposal one visit to the vendors facility to inspect the final bearing. I discovered this situation when I was reviewing their proposal. I had them add two more visits for three people. They missed the interim visits required to inspect the bearing in process. If I had not found this oversight, our subcontractor would want additional scope and money to cover the additional visits which we would have insisted on. Another example. My subcontractor placed a contract with a vendor to provide a fan coil unit. I knew the vendor had a poor track record of delivering a quality specification product. I warned selecting this vendor had a high probability that would adversely impact the project. But they ignored my warnings. End result, the vendor was very late and did not provide a quality unit. It impacted the subcontractors schedule and cost as I had predicted. As a result, our schedule was also impacted.

Summary

The two sources of scope misunderstanding or misinterpretation originate from the contract and subcontract SOW.  This risk for the contract SOW is mitigated by the pre-bid and proposal fact finding questions and answers sessions. The subcontractor SOW misunderstandings, unauthorized scope and hidden scope are more of a risk to your project. To mitigate misunderstanding and misinterpretation of the subcontractors SOW, review the SOW paragraph by paragraph to ensure both parties are on same page. For subcontractor unauthorized scope risk, ensure the Subcontract Manager is in attendance at every meeting with the subcontractor. To mitigate hidden subcontractor scope risks, study their proposal very carefully and do not be shy about pointing out any short comings it has.

If the mitigating actions alluded to above are taken, it will minimize scope being a cause of project failure.

Bio

Currently John is an author, writer and consultant. He authored a book entitled ‘Project Risk Management. It went on sale on Amazon in August 2019. He has presented several Webinars on project risk management to PMI. He writes a weekly column on project risk management for CERN. John also writes monthly blogs for APM. He has conducted a podcast on project risk management.  John has published numerous papers about project risk management on LinkedIn.

John earned a BS in Mechanical Engineering and MS in Engineering Management from Northeastern University. He has extensive experience with commercial and DOD companies. He is a member of PMI (Project Management Institute). John has managed numerous large high technical development programs worth in excessive of $100M. He has extensive subcontract management experience domestically and foreign.  John has held a number of positions over his career including: Director of Programs; Director of Operations; Program Manager; Project Engineer; Engineering Manager; and Design Engineer.  He has experience with: design; manufacturing; test; integration; subcontract management; contracts; project management; risk management; and quality control.  John is a certified six sigma specialist, and certified to level 2 EVM (earned value management).https://projectriskmanagement.info/

If you want to be a successful project manager, you may want to review the framework and cornerstones in my book. The book is innovative and includes unique knowledge, explanations and examples of the four cornerstones of project risk management. It explains how the four cornerstones are integrated together to effectively manage the known and unknown risks on your project.