Danny Wong - Managing Consultant, Business Risk Practice was the risk advisor on a major IT and business transformation project for a large FTSE 100 multinational company. To meet changing business needs the company sought to transform its mission critical legacy mainframe system - something that had been core to its business for over 60 years - to a modern, flexible platform with significantly more functionality and potential for future development.
The business was excited about the opportunity of the new capabilities, but there was a real worry around the project considering the scale and criticality of the system and the various issues surrounding resilience, IP protection, complex integration challenges, the prospects of critical dependence to an external vendor, not to mention the nine figure price tag (in $) for the project were of immediate concern. Fortunately, the experienced CEO and Board were highly risk aware and demanded that the biggest risks were properly addressed.
A creative approach to risk management was instrumental as Danny advised the project from a risk management perspective.
"My approach has always been one of creative problem solving – challenging real risks with ideas that are useable and practical. The ‘magic’ that will provide a working solution to a seemingly unsolvable problem doesn’t come from a process – it evolves from the first spark of an idea during brainstorming sessions comprising diverse skills and grown into something truly innovative."
He recommended true mitigating solutions that transformed the shape of the project, including:
- The ‘Temp to Perm’ concept – The project team was eager to start the contractual negotiations with the external vendor but Danny felt risk mitigation strategies should be agreed before engaging with the vendor. We were worried the vendor could not deliver and despite contractual terms there would be no practical exit strategy once the system went live. Instead, he requested an emergency risk meeting to discuss how they should engage with the vendor. The brainstorming resulted in an idea borne from recruitment – the ‘temp to perm’ concept. The practice to reduce employment risks by offering temporary contracts to test potential employees before offering permanent roles. The idea evolved into a nine month contract to produce a proof of concept before a long term contract was awarded. This gave the project more time to assess the capability of the vendor, motivated them to have a good start without delaying the key milestones of the project.
- The Apple model - the initial plan for implementing the new system was to launch in three phases in order to reduce risk. Danny liked the idea of reducing risk but asked, “Why three? Why not 100?” He then suggested adopting a flexible platform offering basic functionality in the first phase, but then improving on this with numerous subsequent phases to help de-risk the entire project. He used the Apple IPhone model to illustrate this proven approach: Apple launched the IPhone with the core functionality and has created a platform to introduce a growing number of ‘apps’. In addition to reducing risk, this approach enables customised solutions and greater flexibility to change the sequence when ‘apps’ or capabilities are released e.g. to respond to new features introduced by competitors or to meet changing business needs.
The company recognised the benefit of having professional project risk management expertise beyond a traditional risk register approach and so this large-scale project is currently ongoing, utilising the solutions that Danny recommended.
Barnett Waddingham offer significant improvements on traditional risk reporting
Even though the team behind the implementation of this major project were fully committed to the benefits of risk management, they still only employed simple, non-quantitative techniques. Although this approach did help reduce risk as illustrated above, it provided limited forward looking management information. The quote from Trevor Llanwarne in relation to the public sector typifies the challenges of many business leaders.
"The main reported concern expressed by public sector non-executives on managing board level risks is “Why do so many major issues seem to blow up in a big way and we have had no warning; if we did have warning, we may have been able to help out to mitigate or prevent."
Barnett Waddingham can significantly improve on traditional risk reporting approaches by highlighting potential issues before they occur and providing predictive management information. This can be achieved by combining the proactive risk management approach described in the previous section with quantitative analysis on the key risks associated with a project to provide risk adjusted forecasts of the project milestones, expected final completion timelines and budgets.
Barnett Waddingham could develop a financial model that provides a bottom up risk-adjusted forecast for the project. Our actuaries will work with the team to understand scenarios, decipher credible data sources and develop a model that better predicts the completion of the project. This model can be adjusted or sense-checked by qualitative judgements to derive a forecast that project teams fully support.
We will clearly communicate the methodology and assumptions behind the model but more importantly, can facilitate the discussion around business implications and potential actions to reduce last minute surprises.
Barnett Waddingham adopt a proportionate approach to providing quantitative risk analysis on the timescales and budgets for project milestones, which in turn provides new, useful, forward looking information for the project teams and steering boards that help to inform difficult decisions earlier.