Strategies for Value-Creating

Opportunities for value-creating exist when the organisation is prepared to accept some risk in order to gain the advantage that is potentially available because of the existence of the risk. Kaplan and Mikes (2012) refer to the strategic nature of risks and point out that they cannot be managed through a rule-based control model. There are four generic strategies that can be applied to manage positive risks: risk exploitation, risk sharing, risk enhancement and risk acceptance.

Risk exploitation seeks to eliminate the uncertainty associated with a particular upside risk by making the opportunity definitely happen. The strategy does so by maximising the return offered by the opportunity. Risk exploitation means that more resources are allocated to the project that is perceived to offer a high value-creating outcome. The organisation is seen to 'grab' the opportunity on offer and is well aware of the potential positive outcomes.

When sharing a positive risk, part-ownership is allocated to a third party who is best able to capture the opportunity. This may be caused by a lack of internal resources or expertise which is available elsewhere. The organisation agrees to partner with another firm to realise the opportunity, albeit at a lower share of the outcomes for itself. Risk sharing is an option when a new product requires expensive manufacturing facilities beyond the organisation's financial means. The decision is made to share manufacturing and resulting revenues with the partner organisation.

Risk enhancement modifies the size of an opportunity by increasing the probability of occurrence and/or its positive impact. There is a deliberate increase in risk-taking with the view of increasing potential returns. The organisation may consider hiring project staff who have the ability to think creatively. Because they are scarce in numbers it uses a risk enhancement strategy and offers an attractive remuneration package. A strong demand for their talents means there is the risk that they could be headhunted by a competitor at any time. While they are working on the project, however, there is the opportunity to develop attractive new products or services.

Finally, there is an acceptance that positive risk is part of day-to-day project life. In other words, value and risk are two sides of the same coin. It is assumed that by letting the risk play out, resultant benefits emerge naturally. This can only happen when opportunities for value-creation are not lost by eliminating too many risks.

For the successful realisation of strategic risks, Kaplan and Mikes (2012) recommended engaging independent experts, facilitators and embedded experts. Independent experts represent expertise in business, project and/ or risk management from outside the organisation who are periodically engaged to review risk strategies. They act both constructively to complement shortcomings, and confrontationally as devil's advocates by initiating vigorous debate about positive risk strategies.

Facilitators are a small central risk management group within the organisation for projects to consult in developing risk strategies. By their nature they have an excellent overview of the whole organisation and are thus able to ensure that strategic risks are exploited for the overall benefit of the organisation. Embedded experts are members of the project team with strong expertise in risk management who continuously monitor the risk profile of the project. They are particularly relevant for high-risk projects in which risk situations can change dramatically. They work side by side with the project manager in seeking innovative, new ideas and exploiting the existence of positive risk.

Checklist: Do Project Risk Strategies Create Organisational Value?

• Is the difference known between positive and negative project risks?

• Does the organisation accept project risks to gain an advantage?

• Are all risk response strategies considered to exploit positive project risks?

• Are the opportunities of positive risks realised through engaging experts and facilitators?