A few ways to reduce risks of digital transformation projects

Anna Plemyashova, the Head of AI and analytics department at Beltel Datanomics.

It is common practice in project management to distinguish 4 strategies of reducing risks:

  1. Avoidance
  2. Acceptance
  3. Сontrol
  4. Transfer

Innovative activities as well as implementation of new technologies into business processes are initially associated with risk. The strategy of acceptance with avoidance of risks at different project stages, control of results, risk transfer and risk sharing are the strategies used in innovative management in one way or another.

Let’s look closer at a few ways that allow you to prevent or to reduce possible losses, to lower the uncertainty that characterizes projects of digital transformation.

Formalization of problems and targets

If you want to discipline project management and to facilitate communication between participants, you may consider it useful to create a technical specification or road maps. The specification should necessarily contain the target of the project together with the required result. The target shouldn’t be confused with the mission: the target is not a slogan, it should be expressed in performance indicators known to the management.

Throughout project realization people risk getting so absorbed by it that they may lose business focus, that is why it is vital to constantly test the process for its compliance with the strategic direction by asking the following question: “Is current iteration helping us to approach the goal?”

Phasing and detailing

As a rule, business digitalization projects begin with the launch of pilots, limited in time and functionality. Their main purpose is to prove right or wrong the hypothesis, to identify limitations and additional requirements for improving the quality of the solution. Projects of this type are much cheaper to implement, they last two to three months, and then, if piloting is successful, the result is scaled to the entire business.

In order to mitigate uncertainty risks, “pilots” are divided into stages with clear definition of work scope, lead times, and indicators. This is a normal way of doing things for project management, however creating work schedule for innovations implementation becomes a challenge. Detailed scheduling stated on paper is an excellent training for the participants to define the role in the project, to adopt its realization process as well as the tools to control the result.

Sharing responsibility with subcontractors

Tasks division in digital transformation projects as well as outsourcing some of them allow you to accelerate implementation cycle and not to lose time for development of the expertise within the team. Contractual relationship “if … then” is used to mitigate risks of financial losses and subcontractors motivating. Contracts shall stipulate the lead times to achieve required indicators, as well as the additional bonus that the executing party may receive in case of achievement of the result or exceeding it.

Leaving the project at the right moment is also a skill

As stated above, innovative activity is initially associated with risk. A radical form of the avoidance strategy in digital transformation projects is not to undertake them. As a result, there’ll be lack of development and stagnation with the ultimate exit of the company from the market as the saddest outcome. There is a number of examples such as Kodak, Nokia, Polaroid stories that have become “case-studies” in Universities.

Clever balancing between risk acceptance and timely avoidance of them in the projects of new technologies implementation is a useful skill for a businessman.

Integration of innovations can lead to the “effect of a lost mushroom hunter”, that is to be carried away by filling one’s basket enthusiastically to suddenly find out that noises from the road have faded away and it’s now not clear where to go. This is the reason why it’s crucial to define “points of no return” at the very beginning of the project: what budget and deadlines will be critical for making decisions. In some cases, it might make sense to put the project on hold or to scrap it altogether, to avoid the risk and admit that the technology, that is being tested, is not timely or not applicable for the business or the process.

The Bottom line

Appropriate comprehensive risk assessment before solution implementation, usage of risk mitigation strategies allow you to accurately develop projects step by step, to avoid disillusion triggered by innovations increasing efficiency of their deployment.

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