Wednesday, November 19, 2008

Diagramming the Causes of Project Risks

Drop a stone into a pond, and ripples will spread out from the point of impact. This is a cause-and-effect relationship. The rippling effect is caused by the impact of the stone. Remove the cause, and there is no effect.

As a project manager, it is to your advantage to identify the cause of a risk. When you know the cause, you can manage the effect—or risk—appropriately.

One way to view causes and risks is through a flowchart. Flowcharts focus on the cause of the risk instead of on the risk itself. With a contingency plan, you can limit or eliminate a risk's impact on a project's outcome.

The design of a cause-and-effect diagram, which is also called a fishbone or Ishikawa flowchart, is ideal for identifying and showing the possible causes of project risks. It is a diagram that clearly shows the relationship between a risk's cause and its effect.

There is a reason behind every risk—something has to cause a risk to occur. Accurately categorizing the causes for a particular risk will help you to build an effective cause-and-effect diagram.

Risks typically fall into one of six categories:
  1. Methods - These risks involve a company procedure or a way of performing a particular task. For example, a company's security policies may not be stringent enough.
  2. Materials - These risks involve the supplies a company uses to complete a project. For example, the computers used in a project may not have adequate memory capacity.
  3. Environment - These risks involve activities that occur in the immediate physical surroundings. For example, poor weather conditions during a construction project may delay deadlines.
  4. People - These risks refer to actions taken by the employees involved in a given project. For example, inadequately trained staff may be a project risk.
  5. Information - These risks involve knowledge of a specific event or situation during a project. It can also refer to a lack of documentation or incorrect data. For example, a client's request is not recorded properly in the product specification.
  6. Machinery - These risks involve machinery that can be a source of risk in manufacturing. For example, an outdated barker in a paper manufacturing company can be a risk.
These are three steps for constructing a cause-and-effect diagram:
  • Identify the risk.
  • Identify the causes.
  • Build the diagram.
In identifying the risk, you place a concise statement of the problem or effect in a box at the end of a horizontal line.

Once you have identified a risk, you can identify its causes in a brainstorming session. Discussions of this sort typically focus on risks inherent in methods, materials, people, information, machines, and environment.

To build the diagram, you organize the causes of risk into the diagram layout. Each branch represents cause types such as materials, machines, and people.

What are some of the advantages of using a cause-and-effect diagram during the risk identification process? A cause-and-effect diagram acts as a visual display so problems can be seen more clearly. The diagram also helps break large problems down into manageable parts.

Cause-and-effect diagrams are an important part of project planning. In addition to helping you identify risks, these diagrams reveal the causes behind risk so you can manage the risk more effectively.

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