Preparing for the worst-case scenario

In November 2019, TSB, one of the UK’s largest banks, published an independent review of its problematic 2018 migration to a new IT platform. The board at TSB agreed to release the report, conducted by law firm Slaughter and May, in full, not because it agreed with all the findings, but because it had already committed to making the final review public so that the wider industry would have the benefit of this work.

On one level, this has opened the door to practising project professionals to learn from what was missed. More specifically it is the start of a healthy debate on professional thinking concerning the ‘unhappy path’ – or, put another way, permission to think about what might go wrong on a project. Yet this could feel uneasy. Project leaders are supposed to motivate their team by providing an optimistic vision and a confident energy. Should they even be contemplating the ‘dark side’ of a project, let alone engaging their team to consider what happens if life doesn’t turn out to be so rosy?

Inspiring leadership includes preparing for the worst

First, it is important to make clear that this is not about project management, but project leadership. Leaders inspire, while managers seek to control the process. A 2018 APM report, Project Leadership: Skills, behaviours, knowledge and values, found that project leadership is future-focused. It’s about setting direction, dealing with people and working outside the project with stakeholders. Project management tends to be focused backwards on progress that has been made, and inwards on the project organisation.

Project leaders operate with greater autonomy in more unstable and volatile environments that demand fast judgement calls in ambiguous situations. Leaders must foster the right mindset, keeping themselves motivated and energising the talent in the team. Remaining calm under stress matters more than anything else.

Creating an environment where telling the truth is possible is also essential, even if it’s hard to hear. Gallop research suggests that, on average, 70 per cent of people at work are not engaged, not inspired and don’t feel safe to say what they think and feel. Despite their best intentions, leaders often don’t realise this truth.

While project teams need inspiring leadership, that doesn’t mean these leaders should not study and think through a number of possibilities. This will give them the confidence to feel prepared and communicate a single, bold goal convincingly. In being future-focused, project leaders need to consider events that common wisdom says shouldn’t happen, but still do.

So-called ‘black swan’ events may be highly difficult to predict, but like the hairs on the back of your neck, an experienced project leader feels when the conditions might be there for the worst to happen. Of course, that doesn’t stop random events impacting delivery, but an awareness that there might be risks around the corner that could lead to a crisis is the first trigger for crisis planning. Being prepared for what could knock the project off course is a key leadership skill.

Scenario planning for the ‘What ifs?’

Scenario planning is a creative process used to generate a range of options for a future change in circumstances. This type of planning involves speculation and working through ‘what if?’ scenarios, and is often used because it tries to anticipate credible crises and how the project would fare. This makes it a useful risk management tool because it scans for indicators of fundamental changes that may impact the delivery and provide early warning signals of an impending storm.

Scenario planning is not based on past trends or historical data. Instead it develops plausible outcomes at key project stage gates by recognising that there may be alternative futures to the intended outcome. By monitoring variables, the project can detect if a fundamental change is underway that could affect the successful project outcome. The whole process is designed to improve decision-making by allowing possible outcomes and their implications to be considered. Its job is to challenge the natural desired outcomes or ‘happy path’, and it allows project teams the freedom to think about a set of circumstances that would otherwise be taboo.

By imagining a range of negative scenarios, you can face your fears realistically and prepare for the worst. Specifically, the recognition that several factors may combine in complex ways to create sometimes surprising futures. When done properly, by expanding your thinking into the plausible, and by challenging why previous experience might not be a good indicator of future events, scenario planning will help you identify a sequence of events that is all too credible. And that can be worrying.

In the corporate world there is often a strong bias towards stability, predictability and focusing on the right end result. As a 2009 McKinsey article, ‘The Use and Abuse of Scenarios’, explains, large sums of money and many senior executives’ careers have been invested in the core assumptions underpinning the current programme of work, which means that challenging these assumptions can be difficult. Scenarios provide a less threatening way to lay out alternative futures in which the assumptions underpinning the current plan may no longer be true.

Contrarian thinking

Often, the power structure within companies inhibits the free flow of debate. In particularly hierarchical companies, employees will wait for the most senior executive to state an opinion before venturing their own, which then magically mirrors that of the senior person. Scenarios allow companies to break out of this trap by providing a political safe haven for contrarian thinking.

Project leaders need to identify when the prevailing culture means that some subjects are not open to discussion, in which case they need to make space to have honest discussions (see page 48). Of particular value are the members of the project team who are not afraid to speak up. Often labelled ‘individualistic’ or ‘non-conformist’, they offer insights that others may have missed or make associations between events that are too easily overlooked. Having a conformist project team makes for easier project management, but having individualistic opinion is a rich source of scenario planning for the project leader.

One example of how worst-case scenario planning can be applied is the Bank of England’s annual tests of the resilience of the UK banking system. Bank stress tests were widely put in place after the 2007–2009 global financial crisis; they provide analysis conducted under hypothetical unfavourable economic scenarios. They are designed to determine whether a bank has enough capital to withstand the impact of adverse economic developments, to absorb unexpected losses and to continue to lend.

In 2019, six of the UK’s biggest banks and building societies faced an annual test that assumed that several challenging conditions hit at the same time. These included a drop in economic growth, a 33 per cent drop in house prices, an increase in unemployment to 9.2 per cent, a 30 per cent drop in the value of sterling and an increase in interest rates to four per cent. In real life, each of these conditions can be tracked over time and assessment made as to whether a storm is brewing.

Effectively, this worst-case scenario testing buys time for the banks to restructure the required capital before market conditions expose them to real-life risks. Being forced to consider what a worst-case economic storm might actually look like has led to significant improvements in risk management at banks by developing strategies to navigate such scenarios.

What did we miss?

Developing scenarios is an art rather than a science, since people learn from their experience. So for an organisation like TSB to be open about previous mistakes makes it much easier culturally for employees to learn from the experience. It makes it useful to look back at the prevailing assumptions and ask what, in retrospect, they missed. What could have been known at the time that would have made for better scenario planning?

APM’s Project Leadership report found that there has been an overemphasis on project management skills in the past and a greater emphasis needs to be placed on developing our understanding of project leadership skills. If it does all go wrong, you don’t want a project manager to follow the conventional rules; you want a project leader to guide you through a scenario that they have already thought through and been playing out for some time.

Key steps in scenario planning

• Determine what high-impact risks the project faces.
• Break away from ‘the happy path’ and consider what conditions would make this risk a reality.
• Work through a scenario and its implications to its conclusion, explaining why events unfold to realise the risk. If a scenario does not challenge the status quo and initiate debate, discard it.
• Consider the most effective mitigation strategies that can be brought into play as the scenario unfolds.
• Identify what early indicators the project should be on the lookout for as an early warning a scenario may be playing out.
• Revise your scenarios over time as real-life events play out.

Why scenario planning works

Scenario planning works well for projects with a low probability of risk, but a high potential impact of such risk, by:

• managing resistance to change by accepting bad things do happen to good projects sometimes;
• giving active consideration to contingency plans for unexpected events; and
• preparing the project team for possible future events.

The whole process balances the need for a certain amount of creative thinking with the judgement and insight that come from years of project experience.

Keep calm and carry on (or ‘How to deal with a worst-case scenario’)

No matter the project, mistakes happen and events will not always be under your control, so it’s important that, as a project leader, you have the skill to deal with the situation as it unfolds. Leaders invariably will find themselves in a stressful and tense atmosphere, but mustn’t take failures personally – and it’s important to be flexible and change course when circumstances dictate. The biggest complication is understanding exactly what the issue is, and navigating confusing and often contradictory information before any solutions can swing into action. The objective is therefore to assess the size and scope of the crisis, allowing others with more technical experience to present solutions. Remember:

1. Keep your nerve. This is no time to panic – your team needs you the most right now. Project leaders need to show strong self-control in a crisis in order to make rational decisions, communicate clearly and work to effectively solve the problem.
2. Impose some order. Start by scheduling calls to allow stakeholders to contribute to the understanding of the problem. Follow this up with meeting summaries, next steps and details of the next call. This type of communication across a large organisation demonstrates control, provides a single version of the truth, identifies you as the coordinating body and enables you to control the message.
3. Your first response may not be your final response. Continue to take in new information, listen carefully and consult with the front-line experts who know what’s happening.
4. The usual roles may not apply during a crisis. Individuals may act differently, so you can expect good support from the least likely quarters as some individuals adapt exceptionally well to the crisis, while others melt in the loss of control that the uncertainty brings.

 

Mike Wild is a senior project manager, a Chartered Project Professional and a Fellow of APM

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This article is brought to you from the Spring 2020 issue of Project journal, which is free for APM members.