The financial melt-down of 2008 had at its core one simple mistake that a whole bunch of companies made at the same time: they did a lousy job of risk management. They made investments in things that were very risky without realizing just how risky they really were. IT departments face the same challenges: at the start of each year we have a number of different projects that we could possibly work on; however, we rarely if ever do a good job of evaluating the risk associated with each of these projects. Instead we focus on things like ROI, business alignment, and which Sr. VP is sponsoring the project to make our decisions. If we don’t want to get caught in our own special version of an IT meltdown, then we had better see if we can figure out a way to measure the risk of an IT project…
So what is risk when you are talking about an IT project? In the simplest terms risk is the chance that an IT project will fail to produce the results that you are expecting because of a given event or set of events. The purpose of risk management is to make sure that you fully understand the risks associated with a project before you start it as well as managing those risks while you are working on the project.
In the world of IT projects, risk is more often then not associated with the company data that we are in charge of collecting, maintaining, and processing. IT teams need to retrain themselves to focus on the value of the data that an IT project is going to be processing and then determine the likelihood that the project won’t be able to do the processing, or in the worst case will corrupt or lose some / all of that data.
What’s really interesting is that outside of IT, the rest of the business has always used risk analysis to determine when they should roll out new products, determine how to spend marketing budgets, and pick which capital investments they want to make. Implementing a good risk management practice within the IT department is yet another way that CIOs can better align their departments with the rest of the business.
Risk management needs to be baked into all of the steps in your IT department’s projects. This runs from project planning all the way to post-production. Everyone knows that fixing a risk earlier in the process is much cheaper than trying to fix it later on down the line.
How much is all of this going to cost? Actually, a fair amount if you end up doing it correctly. You’re going to have to spend money to determine the value of proposed projects, product lines, and any proposed services. Next you’ll have to assign risks to each of these. This can be quite time consuming; however, the process will pay off over time. The key is to have a strategy for how you want to go about doing this. Focusing on where you want the IT department to be in 5 years is a key part of the process because you want whatever project you select to help you to get there.
How can you tell if all of this effort is worth it? There are actually three ways to go about doing this. Most firms use internal audits in order to determine if their IT risk management activities are are paying off. Depending on the industry that you work in, another way is to use regulatory compliance as your measure. Finally, external audits are an expensive but more complete way to measure your effectiveness.
In most IT departments that have an effective risk management function, the funding for the activity comes out of the IT budget. In most companies the belief is that a well executed risk management program will end up saving them money.
In the end, a risk management program will help your IT department to choose the right projects to work on. Once those projects are selected, then it will help you to develop risk mitigation policies, and fix risk vulnerabilities that may end up yielding process efficiencies. It goes without saying that all of this can end up helping a company meet its regulatory compliance needs.
Does your IT department have a way of evaluating the risk of proposed projects? Does your risk management process exist throughout your project process from start to finish? Have you been able to see any savings since you implemented your risk management program? Leave a comment and let me know what you are thinking.