There’s just one day left until the release of Solving for Project Risk Management: Understanding the Critical Role of Uncertainty in Project Management. In anticipation of my book’s release, I have been blogging about individual chapters. Today’s post is about Chapter 8, titled “Thinking Strategically: Managing Risk, Establishing Reserves, and Setting Incentives.”
In 228 A.D., the military leader Kong Ming and a few of his bodyguards had retreated after defeat in battle to the city of Yangping, China. Fleeing an army of 50,000 soldiers, Ming opened the gates to the city, made all the guards hide, and removed all battle flags from the city walls. He then placidly sat in one of the towers, in unobstructed view of the approaching army, playing a lute. Suspecting a trap, the large army quickly departed. The moral of the story is that a little strategic thinking can deliver big results. Like Kong Ming, organizations can benefit tremendously from strategic thinking when it comes to managing risk, setting reserves, and setting incentives.
In this post, I will focus on incentives. In public projects, motivating contractors is a strategy that can help ensure projects are completed on time and within budget. A good example is a road construction project completed in Huntsville, Alabama in 2018 that was originally planned for four years. The city included incentives for finishing early as well as a $30,000 fine to the contractor for every day the project went past its planned completion date. Partly as a result of these incentives, the project was completed 11 months ahead of schedule. Another example is the work to repair damage caused by the 6.7 magnitude earthquake that struck Southern California in 1994, which leveled structures and homes and collapsed freeways. Key pieces of the damaged infrastructure included two 80-foot tall bridges on I5 and overpasses along the Santa Monica Freeway. The government included incentives to complete the project early as well as penalties for every day the project was late. This spurred the completion of two bridges on I5 a month early and the overpasses on the Santa Monica Freeway 69 days ahead of schedule. Motivation to finish a project early comes at a price, as the contractors working on rebuilding the damage from the earthquake received millions of dollars in bonuses. Project managers have to decide how important finishing a project as early as possible in their decision-making.
For more on managing risk, establishing reserves, and setting incentives, check out my book, which can be pre-ordered from Amazon or Barnes and Noble.