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Insurance premiums are a source of information: they tell us a lot about the real risk level attached to an activity.

What’s the difference between a project and a bungee jump?

They’re both a leap into the unknown. But at least you can get insurance for the bungee jump.

Given all the attention that project management standards pay to risk management, you’d think that some sort of insurance would be available. After all, it’s one of the archetypal risk mitigation strategies. If I can buy insurance for a satellite launch or a model’s legs, why not for my project?

Or take film production. It’s a creative activity. The technology is always evolving. You need a diverse team of specialists. A lot like most digital projects, in fact. Yet you can get completion guarantees for film productions.

A completion guarantee provides insurance that the production will deliver on time and budget. The film’s financers pay a premium to an independent firm (the guarantor) that monitors the production and ensures it stays on track. If anything goes wrong, the guarantor pays the additional costs.

A completion guarantee doesn’t remove all risk. The film could still flop commercially. The guarantee simply separates production risk from box office risk, allowing the financiers to focus on picking the right films.

That’s how it should be for all projects. Let business executives focus on choosing the right projects. Let delivery specialists handle the production risks. Entangle the two, and people start to lose sight of users and benefits.

How would life be better if we had project insurance?

If projects could be insured, I think we’d take on a very different portfolio.  For example:

  1. Some projects would never get started. Just as you can’t economically insure your teenage son to drive a high performance car, organisations with weak delivery capabilities should avoid certain projects. The size of the premiums would tell us which projects are too risky to bother with.
  2. We might take on some high risk / high reward projects.  This is the flip side of (1). Some organisations get so scared of the risk attached to a project that they don't even look at the potential rewards. Clarify the level of risk, contain it within an insurance premium, and suddenly we can think more clearly about the risk/reward trade-off.
  3. We’d kill more projects. Most organisations have zombie projects – still running, but unlikely to ever deliver anything worthwhile. They remain alive because of sunk costs, or because we don't want to lose face. Provide a mechanism to recoup some of those costs, and it gets easier to kill these zombies.
  4. Project sponsors would be more engaged. Freed of the need to deal with complexities of project delivery, sponsors could start to bring their insight into strategic objectives to bear.  It’d become clearer just where we need their help to deal with political and organisational roadblocks.
  5. We’d have a lever to create fully integrated teams. We talk about integrated teams. We create titles like “product owner” and demand that they get involved.  

    Yet too often our projects get split into a full-time delivery team and a part-time business team. We know this creates communication overheads and increases the risk of delivering the wrong stuff. But we have no way to gain people’s attention.

Tell our sponsor that the insurance premium will double if we can’t get more time with the product owner, and they’ll start listening.  It’s now a tangible issue of project costs, not a fuzzy one of “we all want to talk together”.

Insurance premiums are a source of information. They tell us a lot about the real risk level attached to an activity, based on a broader view of the world than any individual can possibly have.

They also tell us what actions we can take to reduce risk. Put better locks on your doors, and your home insurance goes down by 5%; build better links between the product owner and the delivery team, and your project insurance goes down by who knows what – maybe 50%?

Our projects would almost certainly run better if we had this information.

Is such insurance really feasible?

Can we afford to insure our projects? Completion guarantees for films cost maybe 2-5% of the production budget. I’d guess that guarantees for most digital projects would cost much more.  No sponsor is going to put 50% or more of their budget into insurance premiums.

So what can we do to make our projects insurable?

It’s worth looking at what film guarantors do. They don't just take the premium and disappear. They’re active stakeholders in the project:

  • They set clear standards for skills, processes, project controls, status reporting, etc.
  • They actively monitor status of the production, not just through reports but by drilling into the details of what’s going on.
  • They provide skilled interventions when a production begins to get into trouble.  In extremis, they can bring in their own people and take over the shoot.

None of this dampens the creativity or professionalism of the film’s director, crew or cast. It simply creates an environment where projects are delivered reliably enough to be insured.

There’s no fundamental reason why this couldn't happen for our projects. Why aren't we doing it?

Graham Oakes

Published 19 July, 2013 by Graham Oakes

Graham Oakes helps people untangle complex technology, processes, relationships and governance. He is contributor to Econsultancy.

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