Ensure Financial Sustainability As Part of Your Project Risk Management
Sustainability, which is more often associated with environmental or other larger societal concerns, is often not associated with financial considerations, which is a complete show-stopper risk. Public pressure tends to be in external-facing areas such as environmental, community planning, regional economic impact, and impact to local services. In fact, sometimes these considerations even come at odds with internal financial viability and sustainability, which need to be in place to accomplish any of these other external-facing objectives.
This is the second part of a series of four articles on sustainability. This second part, “Ensure Financial Sustainability As Part of Your Project Risk Management”, identifies financial viability and performance as an essential precursor to any other type of sustainability for the project or organization. Part 1, “Support Operational Sustainability in Your Project Risk Management”, encourages PMs to look at the operational impacts and potential risks of a project on an organization. Part 3, “Consider Social Sustainability in Your Project Risk Management”, looks at various external social considerations that may pose risk to the project and organization, and how those social risks can be managed. Part 4, “Include Environmental Sustainability in Your Project Risk Management”, looks at the risks inherent in a number of environmental areas and how awareness is the first step to achieving environmental sustainability.
Risk management and sustainability is a balancing act. And while there may be absolutes in terms of standards we can tolerate, there is still lots of room left for balancing approaches for managing risks. Often, ‘public-facing’ risks are put ahead of financial viability and sustainability. The reality is that no project can be executed unless it is financially sound. It’s a tough problem because there needs to be compromise and understanding between the ‘external’ and ‘internal’ vantage points.
Here’s how this plays out in considering financial sustainability along with other areas of sustainability:
- Environmental – Costs and risks may be out of sync on projects that have environmental concerns. In a simple example, the cost of compliance may be too high to justify a project. In a more complex situation, the risk of being unable to fully comply with restrictive regulations may temporarily close down a business, which could be an unacceptable financial cost and risk to bear.
- Community planning – Communities and businesses within a community may have different and conflicting views of the future. For example, a community may have manufacturing businesses but may have a vision for a future that ignores the needs of manufacturing companies, posing a substantial financial risk to local manufacturers.
- Regional economic impact – A business may have grown up in an area over time and is now entrenched. Financial sustainability of that business will in part be impacted by the regional economic impact of changes based on decisions by local, state, or federal government officials; decisions by larger businesses and other organizations; and by demographic or larger societal shifts within the geography.
- Impact to local services – Often a business grows to become ‘indispensable’ as a local service provider. An example is a shopping mall. A mall closing, which has happened a lot in recent years around the United States, can have a severe economic impact to the community, and yet the mall owner must be able to achieve financial sustainability in order for the mall to remain open.
What are some examples where financial sustainability has been a big consideration on one of your organization’s projects?
This Post is Part of the Series: Sustainability
This series of four articles teaches how project risks can affect operational sustainability in a business.
Support Operational Sustainability in Your Project Risk Management
Ensure Financial Sustainability As Part of Your Project Risk Management
Consider Social Sustainability in Your Project Risk Management
Include Environmental Sustainability in Your Project Risk Management