Project portfolios focused on the best opportunities, and accelerate innovation. So how do you build consensus around the term “best”? George Day’s article[1] provides excellent logic to help you drive a consensual view of risk analysis.

“The risk analysis matrix employs a unique scoring system and calibration of risk. It helps estimate the probability of success or failure for each project based on how big a stretch it is for the firm.”

Risk analysis tells us that “best” is a function of something. The two main vectors identified by Day include the intended market (x-axis) and the product or technology (y-axis). The charts below show the ranges. Both axis range from “Same” to “New” to the company. Since each question to be asked (below) yields five points, the x-axis extends 30 points with six questions and the y-axis extends 35 points with seven questions.

We modified Day’s original questions that were biased toward product development. Therefore, while product development represents one type of project, we have expanded the rhetoric to embrace various project types. Modify the questions further and adapt them to your own situation.

The Risk Analysis Matrix

A project’s position on the matrix is determined by its score on a range of factors, such as how closely the behavior of intended customers will match existing customers (internal or external). Thus, consider how relevant the company’s brand or reputation may affect the intended market and how applicable its technology capabilities are to develop and provide life-cycle services.

Assessing Risk Analysis Across an Innovation Portfolio

Risk Analysis – Failure or Innovation?

Internal Positioning

Product/ Technology

Take Time To MODIFY

Providing a set of questions relevant to every reader requires broad and less meaningful phrasing. Therefore, take time to modify the questions above to reflect your personal environment, market conditions, and constraints. You might even expand or contract the number of questions to more fully embrace your project parameters and culture. Remember that the key to building consensus is getting a group of people to focus on the same thing at the same time. Additionally, never underestimate the value of sharp and appropriate questions to drive consensus.

Begin to interpret

A portfolio review team—typically consisting of senior managers with strategic oversight and authority over development budgets and allocations—conducts the evaluation, with input from each project’s development team. Team members may rate each project independently and then explain their rationale. Or, time permitting, conduct a facilitated workshop to build consensus around each factor and score.

Drive consensus by isolating reasons for any differences of opinion and appealing to evidence and your organizational holarchy. The determination of each score requires deep insights. The resulting scores serve as a project’s coordinates on the risk matrix. According to Day:

“When McDonald’s attempted to offer pizza, for example, it assumed that the new offering was closely adjacent to its existing ones, and thus targeted its usual customers. Under that assumption, pizza would be a familiar product for the present market and would appear in the bottom left of the risk matrix. But the project failed, and a postmortem showed that the launch had been fraught with risk: Because no one could figure out how to make and serve a pizza in 30 seconds or less, orders caused long backups, violating the McDonald’s service-delivery model. The postmortem also revealed that the company’s brand didn’t give “permission” to offer pizza. Even though its core fast-food customers were demographically similar to pizza lovers, their expectations about the McDonald’s experience didn’t include pizza.”

Once completed. . .

. . . the risk matrix typically reveals that:

1. Organizations have more projects than they can manage well, and
2. A majority of projects cluster in the bottom left quadrant of the matrix, and a minority skew toward the upper right, where impactful innovation occurs.

Expect an imbalance between incremental improvements and breakthrough innovation. Discounted cash flow analysis and other financial yardsticks for evaluating development projects are usually biased against the delayed payoffs and uncertainty inherent in massively innovative projects. Again from Day:

“What’s more, minor projects tend to drain R&D budgets as companies struggle to keep up with customers’ and salespeople’s demands for a continuous flow of incrementally improved products.”

The risk matrix provides a compelling and structured visual display to stimulate facilitated discussion. Professionally facilitate discussions and dialogue about the mix of projects and fit with strategy and risk tolerance. Next take a deeper dive into what we cover in our next article, on Real-Win-Worth (R-W-W). R-W-W develops a closer look at each project’s prospects and according to Day represents:

“ . . . a disciplined process that can be employed at multiple stages of product development to expose faulty assumptions, gaps in knowledge, and potential sources of risk, and to ensure that every avenue for improvement has been explored.”

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With Bookmarks no longer a feature in WordPress, we need to append the following for your benefit and reference

• 20 Prioritization Techniques = https://foldingburritos.com/product-prioritization-techniques/
• Creativity Techniques = https://www.mycoted.com/Category:Creativity_Techniques
• Facilitation Training Calendar = https://mgrush.com/public-facilitation-training-calendar/
• Liberating Structures = http://www.liberatingstructures.com/ls-menu
• Management Methods = https://www.valuebasedmanagement.net
• Newseum = https://www.freedomforum.org/todaysfrontpages/
• People Search = https://pudding.cool/2019/05/people-map/
• Project Gutenberg = http://www.gutenberg.org/wiki/Main_Page
• Scrum Events Agendas = https://mgrush.com/blog/scrum-facilitation/
• Speed test = https://www.speedtest.net/result/8715401342
• Teleconference call = https://youtu.be/DYu_bGbZiiQ
• The Size of Space = https://neal.fun/size-of-space/
• Thiagi/ 400 ready-to-use training games = http://thiagi.net/archive/www/games.html
• Visualization methods = http://www.visual-literacy.org/periodic_table/periodic_table.html#
• Walking Gorilla = https://youtu.be/vJG698U2Mvo

Facilitation Expert

Terrence Metz, MBA, CSM, CSPF, PSP01, HTTO1, is the Managing Director of MG RUSH Facilitation Leadership, Training, and Meeting Design, an acknowledged leader in structured facilitation training, and author of “Meetings That Get Results – A Facilitator’s Guide to Building Better Meetings.” His FAST Facilitation Best Practices blog features nearly 300 articles on facilitation skills and tools aimed at helping others lead meetings that produce clear and actionable results. His clients include Agilists, Scrum teams, program and project managers, senior officers, and the business analyst community among numerous private and public companies and global corporations. As an undergraduate of Northwestern University (Evanston, IL) and an MBA graduate from NWU’s Kellogg School of Management, his professional experience has focused on process improvement and product development. He continually aspires to make it easier for others to succeed.