ROI: Risk of Ignoring

I've been grappling lately with the tradeoff between time to market and political expediency. In a nutshell, time to market can be described as a continuum between rapid prototyping and agile development methods on the one hand, and traditional business development waterfall methods on the other. The traditional methods focus on identifying and understanding as many variables as you can before you launch to market - a think before you act approach. In contrast, the rapid prototping agile methods favour an act before (or rather while) you think approach - basically launching with an educated guess and and refining your proposition depending on the response it receives.

The best method for any given situation will most likely fall somewhere between these two extremes.

And finding exactly where the right method for your project falls will involve some assessment of the political risks, as determined by the sponsoring organisation's culture. A more traditional bureaucratic culture will favour a more traditional business development waterfall methodology and will shun the risk associated with a agile method. Similarly, a more entrepreneurial culture will favour a faster time to market and will be more comfortable with the level of uncertainty and risk involved.

This trade off between time to market (return) and political risk (risk) reminds me of the tradeoff between risk and return in investment theory. And so I wonder if there is some sort of efficient frontier that you can calculate for projects and project portfolios. If the analogy holds, then the trade off is not equal across the range (that is, there is a curve in the line on the graph to the right), and there is some theoretical attitude to risk which can be used to determine the sponsoring organisation's optimum risk / method tradeoff. An understanding of that, even at a conceptual level, should help a project manager pitch his/her project correctly for the organisational culture in which he/she must operate.

Get it wrong, and you run a different risk - the risk of squandering the window of opportunity for your proposition. That is, if you do not pursue the most aggressive method that the sponsoring organisation's attitude to risk will tolerate, you risk coming to market later than is absolutely necessary, and possibly missing the window of opportunity altogether.

For that reason, some organisations - those with bureaucratic cultures and low tolerance for risk - will never be able to deliver quickly enough to take advantage of opportunities in rapidly developing markets with opportunity windows that close quickly. And so sponsoring organisations need to target markets which are amenable to their appetite for risk.

Risk profiling and asset allocation - is there a better alternative

One of the things I've been worrying about lately is whether or not there are any viable alternatives to the traditional approach of risk profiling and asset allocation.

There are, of course, a number of well documented shortcoming with the existing approach (see, for example, McCrae's research: Profiling the Risk Attitudes of Clients by Financial Advisors: The Effects of Framing on Response Validity. I am assuming that we're talking about a robust approach to risk profiling and asset allocation, based on a reasonably accurate "attitude to risk" profiler, incorporating goal specific information and timelines (capacity for risk), thorough analysis of efficient frontiers, and regularly reviewed and adjusted. (Any approach that ignores those factors is bad, without detracting from the underlying principle.)

The main criticism that I encounter is that risk profiling questionnaires are inaccurate. That is obviously true. What you really want to now is what is the customers optimum trade off between risk and return. But given that most customers don't understand return (many don't even understand percentages) or risk (even fewer understand probability, let alone probability distributions), it follows that you have to settle for the closest approximation of this that you can find - which will always be slightly inaccurate.

A number of improved approaches have been suggested, for example:

However, these all seem to be based on finding an improved way of presenting risk profiling and portfolio selection processes to the customer, and don't represent alternatives to the basic underlying concepts.

So it seems to, that despite its failings, there is no real alternative to risk profiling and asset allocation, and the best we can do is to strive to improve our tools for performing the existing process.

Browser independence

It worries me that I am now having to use Google's browser (Chrome) to access Google's products (such as gMail) because it is faster, and Microsoft's browser (Internet Explorer) to access Microsoft's products (such as Microsoft Office Outlook Web Access and Sharepoint) as Chrome won't even let me log into Microsft Office Outlook Web Access, and does not deliver all the functionality of Sharepoint.

Whatever happened to browser and operating system independence on the web? I wonder if browsers will be more compatible across different operating systems than they are with each other?