Friday, February 1, 2008

How corporations spin a risk into a benefit

James Maguire, managing editor of Datamation, wrote in Indian IT Firms: Is the Future Theirs?

"In the past, companies used to award IT outsourcing contracts that were longer, 7-10 years. They would hire one firm to do it, and that firm would have subcontractors," Ford-Taggart says. Now, big clients split up major projects and request bids on individual components. "Then they'll say, "Look, we can have this portion done in India for 30% less.'"

This might cause more managerial headaches for the client company, but in fact it's less risk: clients have fewer eggs in a basket with any one IT firm, so if a projects goes bad or creates cost overruns, the entire project won't take such a big hit.
Emphasis added.

I hate this corporate executive definition of "risk". And before you think I don't get it, I understand what they mean but I think they're wrong.

When I talk about reducing risk, I mean that I'm making problems less likely to occur. What the execs mean when they take this position is that they're diversifying the accountability. They want to be able to report that while 20% of the project is at risk, the other 80% is on track.

Well sure, the other 80% can't be used without the 20% that's missing. But the focus here should be that we've got 80% of the project on time and on budget!

If you admit up front that your process is increasing management headaches, you should realize you're increasing the likelihood of problems. You may be mitigating the potential impact, but that's not a given.

Any mitigation strategy that seeks to minimize the impact of a failure, and does so by increasing the liklihood of failure, is probably a bad idea.

No comments: