Mastering the Third Critical Strategic Question–part 2


The second part of Terry Schmidt’s book Strategic Management Made Simple focuses in on the relationship between the four critical strategic questions and how they are captured visually in the Logical Framework approach.   As a review from the first part of his book which introduced them, those four critical strategic questions are:

–What are we trying to accomplish and why?

–How will we measure success?

–What other conditions must exist?

–How do we get there?

The third chapter of this second part focuses in on the third critical strategic question, “What other conditions must exist?”

A.  INTRODUCTION

The answer to the first question will yield you the Objectives, which are the …

–Outcome of the project (the answer to the question “What are we trying to accomplish?”)

–Purpose of the project (“why is the project being done from the standpoint of the customer–what business need is the product of the project is trying to fill?”)

–Goal of the project (“why is the project being done from the standpoint of the organization doing the project–what strategic need are the benefits from the project going to meet?”)

These answers to the first question involve vertical linkages between the Outcome, Purpose, and Goal objectives.

The answer to the second question will ask you “how do you measure success” for EACH LEVEL of the objectives.  The four tips for meaningful measures of success are:

  • Valid–they accurately measure the Objectives
  • Verifiable–clear, non-subjective evidence exists or can be obtained
  • Targeted–quality, quantity, and time targets are pinned down
  • Independent–each level in the hierarchy of Objectives (Outcome, Purpose, Goal) has separate measures

These answers to the second question involve horizontal linkages between the objectives and their success measures.

The answers to the third question will involve diagonal linkages between the objectives and the assumptions that you need to make in order for them to be achieved and measured.

B.  THREE STEPS FOR MANAGING ASSUMPTIONS

In the last post, the importance of assumptions was discussed.   Assuming that the reader now understands the importance of assumptions, let’s move onto a discussion of how to manage them.  According to Terry Schmidt, there are three steps for managing assumptions.

1.  Identify Key Assumptions

Start out with the Outcome.    Try to brainstorm what conditions or assumptions need to be made in order for the inputs to result in the Outcome stated on the Logical Framework Matrix.    What resources have to be in place?   By what date does the Outcome need to be accomplished?    These conditions may be considered constraints on the project, but the key thing is that the logic must flow like this:    IF the assumptions are true, THEN the Outcome can be achieved.    The assumption may not just be the constraints, but it could be events that may occur during the project.   If the result of the project is an event that is going to be held outside, it may rain on that day and some provision needs to be made for what to do if that were to happen.

Now you need to test the assumptions that are necessary to go from the Outputs to the Purpose of the project.   The purpose of the project is for the result of the project to fulfill some sort of business need.   Well, what if the competitor gets their version of your new product out first?   Then your product won’t fulfill that need after all.

Finally, you need to test the assumptions that are necessary to go from the Purpose of the project to the Goal of the project, which is to provide some benefit for the organization that does the project.   But let’s say the product is designed to make $50 profit per unit sold based on the projected development costs.    If the development costs end up being more expensive than planned, then the product of the project won’t end up being so profitable after all.

2.  Analyze and Test Them

With all three levels of Objectives having assumptions, you need to analyze them by asking the following questions:

a)   How important is this Assumption to project success or failure?

b)  How valid or probable is this Assumption?   What are the odds that it is valid–can it be expressed as a percentage?

c)  If the Assumptions fail, what is the effect on the project?  Does a failed Assumption diminish the accomplishment of the project?   Does it delay it?   Does it cause total failure?    (This is really a fine-tuned version of the question in paragraph a) above.)

d) What could cause this Assumption not to be valid?

This will give you two variables to rank the degree of risk, a) probability and b) impact on the project.  Note that in Terry Schmidt’s formulation, the Assumptions are listed as positive events (“it will not rain”) as opposed to possible negative ones (“it will rain”).   Therefore the higher the probability of the positive assumption being valid, the less likely it will impact negatively on the project.

3.  Act on Them

Okay, now that you’ve analyzed the assumptions, how do you deal with them?

There are four possible strategies for dealing with assumptions.   In outlining these strategies, consider that the assumption is written as if a positive event or conditions exists.   In traditional risk management language, the risk is written as if a negative event or conditions exist.

a)  Avoid–if the probability of a negative event is high, and its impact is high, then you may want to eliminate the cause of risk, or design the project in such a way as to make the Assumption moot or irrelevant

b)  Transfer–if the probability of a negative event is low, and its impact is high, you may want to consider transferring the risk to some other party that is better suited to handle the risk (insurance is a form of risk transfer)

c)  Mitigate–if the probability of a negative event is high or its impact is high, you may want to try to reduce either the probability of its occurring or reduce its impact on the project if it does occur.

d)  Accept–if the probability of a negative event is low and its impact is low, you may just want to accept that risk and develop contingency plans to put in place just in case the event occurs.

 

Acting on assumptions essentially means putting a risk response plan in place, either to mitigate the risk as a preventive measure or to handle it with a contingency plan if it does occur.   These make your project plan robust, meaning that, it can still be achieved even if risks occur.

The next post covers some additional functions that assumptions play on a project.

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