The 4 Levers of Success Introducing the 4e Risk Model · PDF fileThe 4 Levers of Success,...

The 4 Levers of Success, Introducing the 4e Risk Model.RiskSIG & PMI, Rome Chapter, International Risk Management Conference, 5-6 November 2009 1

The 4 Levers of Success Introducing the 4e Risk Model

Ronan J. Murphy

RiskSIG & PMI, Rome Chapter, International Risk Management

Conference, 5-6 November 2009

• Dissatisfied with the risk mitigation approach

“What could go wrong?”

• Saw potential in value creation approach

“What must go right?”

Re-defining the problem

“The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic”

Peter F. Drucker

Re-inventing the discipline

The current global economic crisis is evidence that we need to radically

improve the discipline of risk management.

• Risk management guidelines provide exhaustive lists of “what to do”

• Less emphasis on “what to do first”

• Virtually silent on “how to do it”

Constraints

A lever is a powerful factor that can influence project outcomes that can be manipulated through management effort

Back to basics – The Lever

First Principles - Management Methodologies

• “The 80 / 20 rule” - Vilfredo Pareto

• “The vital few & the trivial many” - Dr. Joseph Juran

• “The rate of goal achievement is limited by at least one constraining process” - Theory of constraints (TOC)

Simple ideas stand the test of time

First Principles - Management Methodologies

• The Deming Cycle – Plan / Do / Check / Act

• Balanced Scorecard– Financial Perspective ; Internal Process Perspective; Learning &

Growth Perspective; External Environment Perspective.

• S.W.O.T. Analysis– Strengths / Weaknesses / Opportunities / Threats

The MAGIC NUMBER 4 - Repeating patterns of 4 in established management methodologies

First Principles – Economic Chain

“The most successful companies know and manage the costs of the entire economic chain rather than its costs alone”

Peter F. Drucker

Guiding Principle – 1: Methodology

Successful risk management in the 21st

century demands nothing less than a simple, systematic, and actionable methodology that works!

Guiding Principle – 2: Performance

The correct unit of analysis and measurement of risk management performance is “what are we doing to ensure that we are achieving our goals?” rather than “how many risks are we actively managing or preventing that could get in the way?”

Guiding Principle – 3: Coverage

We need a unified and fully integrated end-to-end performance analysis framework to help us make better management decisions.

Guiding Principle – 4: Consolidation

The aim of the 4e Risk Model is, therefore, to assist managers in optimizing their team’s efficiency in driving effective processes to achieve optimum economy of effort to deliver expected value to their customers.

Guiding Principle – 5: Components

The 4e’s are therefore the levers that managers use to drive successful performance:

• Efficient people – are we doing things right?• Effective processes – are we doing the right things?• Economy of effort – are we getting value for money?• Expected value - are we getting the right result?

An overemphasis on one success lever can cause dysfunctional behaviours & value destruction e.g. the catastrophic results from the profit centric finance industry.

Guiding Principle – 6: ConstraintsIn accordance with the Theory of Constraints (TOC) all 4 levers have to be

activated to ensure that performance is optimized. All 4 “hurdles” need to be overcome:

Hurdle 1 -

okHurdle

2Hurdle

3Hurdle

The 4e Success Formula: RR**VV

= = 2C2C

4e RISK LEVERS

(RR)VA

LS( VV

) CORE COMPETENCY

SUSTAINABLE BUSINESS RESULTS

COMMUNICATION FUNDING ECONOMIC LOGIC

PRODUCTS & SERVICES

STAGING ARENAS STRATEGY

LEADERSHIP BARRIERS BUDGET ALIGNMENT

RESOURCES CONSISTENCY ROI

CCreating the optimum CConditions for

success

4e Risk Management Paradigm

Old Paradigm New Paradigm6σ

– Methodology based on measuring & reducing implementation defects.

4e – Methodology based on measuring & increasing value creating activities.

Balanced Scorecard

– Strategies often become irrelevant and overtaken by events.

4e Risk Efficiency Scoreboard– Success levers and value levels are always relevant no matter what the strategy.

Dashboard Reports

- Snap-shot of “Where we are”.

4e Compass

- “Route Map of “Where we are heading”.

Audit Reviews

– We are looking for evidence of poor performance.

4e Reviews

– We are looking for evidence of excellent performance.

Lean Management

– Identify & eliminate waste. 4e – Identify and create value.

Maturity Test

– Excellence in risk mitigation 4e Maturity Test

– Excellence in value creation

Mapping Best Practice – 4e is evenly spread

26% 27% 19% 28%

Testing Best Practice – 4e finds gaps (PMI is safe)!

Porters Value Chain Model - No explicit cost / VFM factors.

4e finds more gaps!

1 success lever factor

5 success lever factors

4e helps balance Project ManagementProject Management

activities

4e helps balance Value ManagementValue Management

activities

4e helps balance Risk ManagementRisk Management

activities

4e helps challenge Risk ManagementRisk Management

standards

More activities under this

lever?

Overemphasis here?

Less activities under this

lever?

4e is consistent with Agile Management Principles

The 4e Risk Model

Worked Example The 4e Risk ModelTM as applied in a leading International Civil Engineering Consultancy

Main Components of the 4e Risk Model

Target Improvement Area

4e DiagnosisThe 4e Risk Model is initiated by using a questionnaire.

This questionnaire is designed to test how projects are performing risk and value management according to best practice success criteria.

Project directors, project managers & ideally peer review staff complete the questionnaire to help reduce the risk of a biased result.

The average score for each answer is used to determine a consensus estimate for the final score for each question.

Once the consensus estimate is agreed each cell is colour coded to create the Performance Dashboard.

Note there are a variety of specific questionnaire templates. E.g. for C- Suite and Programme Management levels.

Analysis – 4e Risk Methodology as applied in a leading engineering consultancy design office

“WeaknessesWeaknesses”

•Scored 1 or 2

•Cells coloured red.

“NeutralNeutral”

•Scored 3

•Cells coloured yellow.

“StrengthsStrengths”

•Scored 4 or 5

•Cells coloured green.

Totals scores for each row are used to create the Value Level Compass.

Totals scores for each column are used to create the Success Lever Compass.

4e Risk Compass

Interpretation –

Level 1 –

Executive Overview

The project teams appear to be performing reasonably well in risk management (i)

but due to weak Process Controls (ii)

and a disproportionately strong emphasis on Value Engineering (iii)

- there is a risk that long term value for money considerations have not been appropriately taken into account (iv)

4e Risk Compass – AdjustmentLevel 1 –

Executive Recommendations:In order to achieve a more balanced application of the

four success levers the relevant manager should carry out a quality audit of value engineering activities. The audit should identify four categories of actions:

a) Activities that are to STOP

immediately – such as any further value engineering or design refinements.

b) Activities that are to be REDUCED

to a minimum e.g. multiple reviews & approvals loops

c) Identify decisions / options for activities that need to START

immediately e.g. freezing designd) Activities to INCREASE

e.g. controls on design refinements.

The PM should assign each task to an appropriate team member to be completed by a specified deadline & manage these tasks to their successful completion.

The 4e Risk Model includes a series of further, more specific questions under each initial key question to help identify the root causes of poor performance.

An estimate of the required level of adjustment is indicated in red shading

above to provide an appropriate balance across all success levers.

Once the specified recommendations have been carried out, the diagnosis should be repeated to help ensure that this balance has been achieved and that no over-compensation has occurred in other areas.

4e Value Compass – Adjustment

Recommendations:In order to achieve better value for money across the

board – consider the following strategic options:

a) Stage – Divide the project into distinct stages where pursuit of each stage is contingent on a reassessment of costs and benefits before approval to proceed with the next phase.

b) Abandon – A last resort - terminate the project if this is a financially viable option.

c) Defer – Descope or defer appropriate project requirements through variation orders.

d) Transfer contingency funds away from low risk projects nearing completion to cover high risk projects.

e) Change scale - contract or expand selected investment areas

f) Switch purpose of product service to cater for greater demand.

Consider further clarification and possible adjustments to the yellow shaded “Neutral” areas in the performance dashboard.

An estimate of the required level of adjustment is indicated in red shading

above to provide an appropriate balance across all Value Levels.

The dotted red line

indicates the target effect of these recommendations.

Target Reduction Area

4e Risk Efficiency Graph

• 4e Risk Efficiency Scoreboard• 4e Risk Breakdown Structure• 4e Risk Efficiency Graphs• 4e Workshop Templates• 4e Risk Maturity Model• 4e Knowledge Base• 4e Process Maps• 4e Risk Management Training Courses – see next slide

For further details, feedback, or to become a registered4e Risk ModelTM user contact: ronan.murphy@rocketmail.com

Other components of the 4e Risk Model

4e Risk Model4e Risk Model Certified Training Courses

For details contact Phillip MatthewsDirector of Executive EducationUCD Michael Smurfit School of BusinessBlackrockCo. DublinIreland

Phillip.Matthews@ucd.iePh: +353 1 7168944or

liz.knight@ucd.ie

Ph: +353 1 716 8801

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