Look on the right.

You see that man?  That’s Tony Hayward, CEO of BP.

Does he look happy?   No, he’s not happy.

Does he look comfortable?  I don’t think so.

He’s being grilled by the US Congress.

One of the reasons?  He – or his company – or perhaps his whole industry – doesn’t seem to understand a simple equation which most project managers know by heart.

RF = P * I

Risk Factor is the product of Probability and Impact.

In any uncertain situation, you should be able to determine how much effort is required to spend in responding to a risk (a threat in this case) by understanding the Risk Factor (some call it Risk Score).

In this case, the probability may be very, very low.  But the impact is so astronomically high, that the product – the Risk Factor demands a huge risk treatment or response.

The impact in this case is a combination of very tangible things, like a $20B escrow fund, some mildly tangible things, like the health of one of the world’s most delicate ecosystems and the livelihood of hundreds of thousands of people, and the intangibles, such as the reputation of a multinational corporation which has just spent oodles (our own very technical financial word) of dollars to make their image a very green and friendly one.  How’s that working out for you, BP?

So – in that equation, I think we can all agree that no matter how low “P” is, “I” is very, very, high.  So the Risk Factor is going to be worth considering.

And yet.

And yet…

Just before the explosion of the Deepwater Horizon rig, BP sent home a crew from Schlumberger who was going to do a cement bond log.  What is that, you ask?  It’s a “representation of the integrity of the cement job, especially whether the cement is adhering solidly to the outside of the casing. The log is typically obtained from one of a variety of sonic-type tools. The newer versions, called cement evaluation logs, along with their processing software, can give detailed, 360-degree representations of the integrity of the cement job.” Seems like a good thing to do – and good assurance that your bond will hold.  Right?  The cost of this would have been $128,000.  This is only one of five decisions being raised at what can only be called the grilling of Tony Hayward.  The questions, coming from Republicans and Democrats, from oil states, and states that grow corn, all seem to be going after the companies acknowledgment of the Risk Factor equation above.

There is one point in the dialogue where Hayward seems to recognize the equation – however fleetingly:

“It gets to that point, though, that you have to question every assumption, especially when your entire company and its solvency are on the line.”

…and that equation leaves out the 11 dead, the ecological damage and the fact that the Gulf provides a livelihood for so many people as well as food for the world.

So what’s our point?

Keep the equation handy.  Keep it in mind.

Don’t be so fast to save $128,000 when on the other side of the equation there is a tangible $20B, and an even greater list of intangible damages to consider.  Your numbers may be lower (hopefully on both sides of the equation) but you will face this same choice.  Think of that picture above.  Do you want to have to wear that expression?

You can track the actual questioning here.

“A Workaround is a solution to an unanticipated problem. Not to be confused with a contingency, or backup plan, which is conceived in advance, a workaround is a far less elegant solution to the problem. Typically, a workaround is not viewed as something that is designed to be a panacea, or cure-all, but rather as a crude solution to the immediate problem.”

The above is taken from an excellent resource for PMs – a blog called Project Management Knowledge.  They have a glossary and this is the definition of workaround.  We like it.  That is, we like both the site and their definition of ‘workaround’.

At the time of this posting, the Ron Howard movie Apollo 13, starring Tom Hanks, Kevin Bacon, Gary Sinise, and Ed Harris, is showing on Home Box Office (HBO).  Also at the time of this writing, the Gulf oil spill continues and repeated attempts to fix it have failed.  Attempts with names like Top Hat, Junk Shot, Top Kill, and the latest, Slice and Cap, are a strong giveaway that what we’re working with here are, in fact, clearly workarounds.  In fact, we understand that James Cameron has been invited to help solve the problem, based on his work with advanced underwater robotics from his film The Abyss.

The reference to crude, the fact that the new mission of Apollo 13 was to get the astronauts back to Earth, and this being a blog called EarthPM combined with the crude that is pouring into the Gulf and the workaround(s) being attempted to fix that problem seemed to me to have way much too much ‘karma’ to not generate a post – a valuable one, we hope.  Oh, wait, there is the other connection of movies to the Gulf with the James Cameron invitation.  Wow, that is a lot of karma!

I suggest you start by watching this scene from the movie.

OK, if you have seen the movie, that was a good refresher, right?  And if not, suffice it to say that at this point, NASA is furiously searching for a way to save the lives of the astronauts, having scrapped the original objective the moon landing project long ago – just as BP is furiously searching for a way to stop the leak, the lawsuits, the damage to the environment, and to minimize the reputation damage they’ve suffered, to say nothing of avoiding criminal charges, having scrapped the original objective of the well (drawing oil from it to make money).

So let’s bring this back to Project Management again.

When we manage a project, we do a thorough job of Risk Management Planning, including the creation of  a Risk Management Plan – to tell us how, in general, we’ll deal with risk on the project.  This includes the ways in which we’ll identify risk, and general broad brush plans for contingency management.   Up front, in the project, we go through Risk Identification, Analysis (both qualitative, to see which ones have the highest risk factors, and quantitative, to further analyze those with the highest risk factors).  Only after we really have a handle on the project’s risks do we go through the details of responding to risk.

Furthermore, even after all this is done, we don’t stop.  We monitor and control risks to see, for example, if new risks have popped up, or if our current assumptions are still valid, or if the risk response plans we’ve put in place are working.

So, all that said, what if our risk response doesn’t work?

That’s where the word contingency comes in.  Contingency is money, time, or resources (like a life-saving flotation device) set aside to minimize the impact of the risk that is now triggered.  These are thought of in advance.  In the Apollo 13 dialogue, you hear the engineers actually use this phrase (”we didn’t have a contingency for this”).

On a cruise ship, a fleet of lifeboats on a cruise ship is part of their contingency planning. If contingency is a house pet, a workaround is a very different animal.  A workaround, unlike a contingency, is not fed with foresight, softly petted with preparation, not pampered with planning .  Instead, a workaround is like having a wild boar, or even more descriptively, a griffin suddenly appear in your living room, hungry, flailing, snorting, and growling.  It’s unexpected, and you must deal with it NOW.  And it’s really the dealing with the griffin that is the workaround, not the griffin itself, although the imagery was just too good to avoid.

That’s what BP and Transocean and Haliburton and Cameron International (manufacturer of the Blowout Preventer) are facing now.  That’s why they’re calling in movie directors and engineers, and 25,000 workers to put together Top Hats, Junk Shots, Top Kills, and Slice and Caps.  There was less of a contingency than there should have been to deal with the impact.  Once again (and we’ve blogged about this), why wouldn’t the oil industry as whole (if not BP in particular) have had a fleet of the Kevin Costner -funded boats ready to clean up the spill to at least buy a little time?  That’s a form of contingency that would have kept the griffins at bay.

Now BP has said that it had a contingency plan, and it’s working – incredibly, they did actually say that, just a few days ago.  Read that story here.

Let’s wrap this unusual posting in the following way:

It’s worth it to put the time in up front in a project so that you really understand the risk factors (the probability multiplied by the FULL impact) of all of your risks, and it makes sense to put the time in up front on contingency planning on those risks.