PMI has adopted a new risk response strategy in the PMBOK Guide 6th Edition. That new response is "escalate." According to the PMBOK Guide 6th Edition, “Escalation is appropriate when the project team or the project sponsor agrees that a threat is outside the scope of the project or that the proposed response would exceed the project manager’s authority.”
But there's a better way to deal with the problem that risk responses exceed the project manager's authority, which I will explain below: a way to organize that obviates the need to abdicate through escalation, avoids inducing sponsors to micromanage, and eliminates the rampant misalignment between sponsors and project teams that disempowers those closest to the work to act wisely and with agility.
An essential role of the sponsor is to convey the project's risk appetite and risk tolerances and from this perspective to sign off on all severe risks and responses to those risks. By comparison, the project manager's role is to identify risks, develop risk responses, get approval from the sponsors for responses to severe risks, and to manage risk responses capably to resolution.
In most organizations, the sponsor is the project owner. Sponsorship is ownership. Sometimes this is delegated (or the sponsor is a proxy for the owner). Sponsors are benefactors, and as persons who provide or secure resources for projects they typically expect something in return, meaning they seek the benefits from the outputs of the projects.
As such, sponsors approve success criteria, performance baselines (schedule, budget, scope), change requests (CR's) pertaining to the aforementioned things, and risk response plans for severe risks that the project faces. In this context, they "own" the project. The owner has the power to continue the project or dispose of it. Without sponsorship, a project cannot continue.
SPONSORS ARE BENEFACTORS
As the project's benefactor, the sponsors implicitly approve that the project can proceed in the face of risks. While the project manager will manage those risks, the project manager cannot decide on the project's behalf the threshold distinguishing acceptable risks from unacceptable ones. This is why the project sponsor must "own" (approve) the risks that the project manager manages. In RACI terms for project risk management, the project manager is responsible, but the sponsor is accountable. If one wishes, one may further refine these roles by distinguishing different levels of sponsors and different levels of approval for different types of risks.
BENEFACTORS SEEK BENEFITS IN RETURN
As benefactors for projects, sponsors typically seek benefits from projects in return. As such, sponsors provide a strategic perspective (linking project outputs to expected benefits), motivate the team to produce the outputs that will yield the expected benefits, and help to supply resources and dismantle issues that the team cannot dismantle themselves. To be successful in this role, sponsors must be engaged proactively in their projects, and project managers must make that easy for sponsors.
PROJECT MANAGERS OWN MANAGEMENT OF THE TRIPLE CONSTRAINT
By comparison to the sponsor role, the project manager owns management of the project, which includes schedule management, cost management, scope management, stakeholder management, integration management, resource management, quality management, communications management, and procurement management. All of these areas of management are inputs to risk management, which is a primary function of the project manager. Project managers should spend much of their time on risk management.
The project manager must ensure the sponsor is aligned and agrees with the way risks have been identified, how they are articulated, agrees that risk statements correctly distinguish what the real risk is, and that the sponsor agrees that the correct responses have been formulated by the project manager or team.
SPONSORS DECIDE THE PARAMETERS OF THE TRIPLE CONSTRAINT
Sponsors must be informed of risks and approve risk responses because the sponsor is accountable for risks in ways that a project manager simply cannot be. While the sponsor (and not the project manager) decides the organization's risk tolerance and threshold, the project manager is responsible for managing the risks. To be successful in management of the project, the project manager must enroll the sponsor(s) to distinguish how the project manager should manage the triple constraint (and the "true North" of those constraints) within an acceptable threshold of risks. This is a dialogue between the project manager and the sponsors, and it is ongoing. Sponsors typically sit on a Change Control Board (CCB) for the projects that they sponsor, which approves success criteria and performance baselines (schedule, budget, scope) at each stage of the project. Sponsors approve or decline change requests (CR's) pertaining to the aforementioned things, which may occur at any time. The role of approving success criteria and approving performance baselines and changes to these things is not the same thing as managing the triple constraint, which is project manager's role, i.e. to manage the delivery of project deliverables (specs, on time, on budget, on cost).
INCREASING MATURITY IS THE ONLY WAY TO OVERCOME THE TRIPLE CONSTAINT
The triple constraint of a project (or the "Iron Triangle") is unforgiving. Changes in one of the three constraints of schedule, budget, or scope (delivered with quality) will always require a change to another of the constraints as a trade-off. However, as the organization increases its Organizational Project Management maturity, it will become more capable. When capabilities increase, it is possible to create more project outputs, to do so faster, at a lower cost, and with higher quality WITHOUT increasing risk.
SPONSORS BALANCE RISK-AVERSION WITH REWARD-SEEKING
It's natural for the persons who seek benefits from the outputs of projects to advocate that the project produce more of those outputs or do so faster or at a lower cost or with higher quality. Those imperatives, however, often increase risk. For example, we can speed up a project by taking work that is serial in nature and re-planning it so that tasks which were serial are done concurrently, i.e. "fast tracking." But this increases risk.
Requiring the sponsors to sign-off on risks and risk responses corrects imbalance between reward-seeking and risk-aversion. It ensures sponsors remain informed and aligned. It changes the dynamic of teamwork in positive ways. It discourages adversarial relationships, encourages partnerships, and cultivates servant leadership.
IF PRODUCT MANAGERS OWN BENEFIT REALIZATION, THEY'RE NATURAL SPONSORS
Because the sponsor, who secures resources on behalf of the project, is invested in the realization of benefits from the project (which occurs after the project is finished), it makes sense for a product manager to be a sponsor on New Product Development projects (assuming that the product manager owns the product life cycle). Alternatively, a product manager may play the role of "Business Analyst," which facilitates the capturing, prioritization, and implementation of business requirements and functional requirements through the stages of the project life cycle.
ONE PROJECT, MANY SPONSORS
While it is a de facto standard that the project owner is the project sponsor, we often see that projects have more than one sponsor. In many organizations the top priority projects have both a "sponsor" and an "executive sponsor." As these names imply, this is a distinction between levels of the vertical management hierarchy, where a "sponsor" plays the primary role we have discussed (acting as the project owner or proxy, accountable for benefit realization and governing risk tolerances), while an "executive sponsor" also plays this role but is naturally an escalation point.
In addition to having more than one sponsor, projects may have sponsors from different organizations. When there are multiple organizations involved in a project, whether those organizations are internal or external, we may see sponsors from each. If I.T. undertook a project that required an extraordinary investment on the part of, say, Supply Chain, we would expect projects sponsors to include both someone from I.T. and someone from Supply Chain. If Finance undertook a project that was composed largely of employees of a consulting firm contracted to help deliver Finance’s project, one would expect the project to have a sponsor from Finance and a sponsor from the consulting firm.
ROLE SUMMARY WITH PROS AND CONS
As benefactors of projects, sponsors are naturally persons who seek benefits from projects in return.
Pro: Sonsors provide a strategic perspective, linking project outputs to expected benefits. Con: One must distinguish between the motives of sponsors who are project owners and sponsors who represent supplier organizations.
Pro: Sponsors motivate the team to produce the outputs that will yield the expected benefits. Con: Organizations are notoriously bad at managing the link between project outputs and project benefits.
Pro: Expecting benefits, sponsors help to supply resources and dismantle issues that the team cannot dismantle themselves. Con: Sponsor bandwidth is limited.
Project Managers own management of the Triple Constraint.
Pro: If sponsors set the project's goals and risk profile, project managers can manage timing, costs, and scope against risks. Con: The project manager cannot decide on the project's behalf the threshold distinguishing acceptable risks from unacceptable ones
Pro: The project manager's role is to identify risks, develop risk responses, get approval from the sponsors for responses to severe risks, and to manage risk responses capably to resolution. Con: Sponsors sometimes have difficulty understanding that those seeking benefits from the project must decide the project's risk appetite or tolerances, and that project managers cannot do this themselves.
Pro: Project managers can ensure the sponsor is aligned and agrees with the way risks have been identified. Con: When projects are failing, sponsors may suffer from optimism bias, escalating commitment.
Pro: Project managers can ensure the sponsors approve how severe risks are articulated, and that they correctly distinguish what the real risk is. Con: Sponsors sometimes fail to appreciate the importance of risk analysis and thus devote insufficient time to it. They say "That's the project managers job, and I don't need to be involved." This is, in effect, to abdicate.
Pro: Project managers can solicit sponsor approval that correct responses have been formulated by the project manager or team. Con: Sponsors may be prone to "rubber stamp" their approval of risk responses.
Project owners are project sponsors, and project sponsors are project owners.
Pro: Persons who provide the resources necessary to enact a project (the owners) are appropriate persons to decide the project's risk appetite and tolerances. It's their investment at stake. Con: Sometimes sponsors are unable to decide risk appetite and tolerance on their own, and coordinating these decisions is a cost.
Pro: Persons who provide the resources necessary for the project are appropriate persons to approve success criteria, performance baselines, change requests, and responses to risks to these things. Con: When multiple organizations provide resources for a project, approvals for success criteria, performance baselines, change requests, and responses to risks to these things must be decided jointly.
Pro: Persons who sustain investment in the project are naturally the right people to distinguish acceptable risks from unacceptable ones. Con: Sometimes project owners prefer to transfer risk-taking to others when that is not realistically an option. In effect, they wish to abdicate by not taking a position and to do so without repurcussion, which usually is not possible.
Pro: Project owners can approve risk-taking that project managers cannot approve unilaterally. Con: Sponsor bandwidth is limited.
Sponsors are accountable for deciding the project's risk appetite and approving responses to severe risks.
Pro: This is a role that sponsors can play that project managers typically cannot. Con: Sponsor bandwidth is limited.
Pro: Naturally balances reward-seeking with risk-taking. Con: Typically equires a cultural shift.
Pro: Ensures sponsors remain informed and aligned. Con: Typically requires a cultural shift.
Pro: Changes the dynamic of teamwork in positive ways. Con: Typically requires a cultural shift.
Pro: Discourages adversarial relationships. Con: Typically requires a cultural shift.
Pro: Encourages partnerships. Con: Typically requires a cultural shift.
Pro: Cultivates servant leadership. Con: Typically requires a cultural shift.
Product Managers can be sponsors of projects, specifically New Product Development projects.
Pro: It makes sense for a product manager to be a sponsor if that the product manager owns the product lifecycle. Con: If it's not true that the product manager owns the product life cycle, then it may be a mistake to assign them the role of sponsor based soley on their title.
Pro: Alternatively, a product manager may play the role of "Business Analyst." Con: Assigning a Business Analyst does not necessarily help to identify the correct sponsors.
Projects may have multiple sponsors.
Pro: helps information processing through differentiation of the veritcal management hierarchy. Con: No two projects are ever the same, and how this is structured must be tailored to the project.
Pro: Projects may have sponsors from different organizations. Con: One must distinguish between the motives of sponsors who are project owners and sponsors who represent supplier organizations.