This is the sixth in a series of articles about building the business case for human capital management initiatives. In our previous article, we showed how to use several methods to calculate return on investment.
The ROI you calculate assumes everything will go as planned.
What if it doesn’t? What if the project schedule changes? What if your organization delays funding? What if you must replace a key team member? What if…?
Be diligent about uncovering risks. The worst possible event in your project is the one you didn’t anticipate. Talk to people to learn as much as you can about what can go wrong. Here are a few suggestions:
- colleagues in your professional associations,
- executive sponsor,
- your technology team (even if it is not a technology initiative),
- engineering, and
- an experienced project manager.
Calculating and managing risk is an essential feature of every proposed initiative or project in any business activity.
Impact and Probability
Standard practice is to assign an impact rating to a risk, then estimate the probability or likelihood that the event will happen. The following tables give you an idea how to construct your rating values.
Note that a risk factor with a 100% probability is not a risk – it is a certainty. Build it into your ROI analysis and implementation plan.
After you assign impact and probability scores, multiply them to arrive at a Risk Score. Some project teams like to assign colors to risks levels to help them see at a glance where they need to focus their mitigation effort.
Risk Analysis Worksheet
Thoroughly explore the impact of each risk. Describe each risk scenario and its implications in a Risk Analysis Worksheet. Plan whether to avoid, transfer, or mitigate the risk. Document the strategy and mitigation plan for each risk.
Calculating Impact of Risk
Your ROI worksheet can help you calculate the impact of risks.1 In the next sample worksheet, we show a project that requires 18 months to implement, so benefits begin halfway through year 2.
If the project is delayed by six months at a cost of $100,000, the benefits will not start until the beginning of Year 3, so the project will not recover its cost until Year 7.
When you present your risk analysis to your executive team, be straightforward about the potential impact and your limitations. You may find help where you least expect it.
1.Sheen, Raymond. HBR Guide to Building Your Business Case. Harvard Business Review Press.
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