1 Department of Production and Quality Engineering Rethinking Project Risk Management PUS Seminar,...

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Department of Production and Quality Engineering

Rethinking ProjectRisk Management

PUS Seminar, November 30, 2010

Professor Asbjorn RolstadasNorwegian University of Science and Technology

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Project Management - State of Art

PMI driven Main focus on delivery projects Structured approach Make a plan and stick to it Manage deviations and changes Avoid or manage risk

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All Projects Carry Risk

Scope creep Hope creep Effort creep Feature creep

Scope

CostTimeFrom Wysocki

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Uncertainty, Risk and Opportunity

Uncertainty More than one outcome Connected to probability Representing a state of insufficient information Opposite of certainty

Risk Event that has negative consequences if it happens Probability of event multiplied by consequences

Opportunity Event that has positive consequences if it happens Probability of event multiplied by consequences

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Stakeholders Create RiskP

ower

to In

fluen

ce

Level of Interest

Low

HighLow

External Stakeholder

Key PlayerHostage

The Grey Eminence

To be kept satisfied To be involved

To be kept informedTo be briefed

Hig

h

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Traditional Risk Management

Riskidentification

Quantitativeanalysis

Qualitativeanalysis

Riskcontrol

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PMI Risk Management ProcessesDescribes the processes concerned with conducting risk management on a project

Project Risk Management

Risk Management Planning

Risk Identification

Qualitative Risk Analysis

Quantitative Risk Analysis

Risk Response Planning

Risk Monitoring and Control

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Out of the Box Thinking Blue Ocean Strategy Black Swan The Tipping Point Reinventing Project Management Managing the Unknown Agile Project Management Risk Navigation Strategies – Beyond the Myth of

Predictability

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Red Ocean Competitive battlefield All competitors present Fighting to be the best and beat each other Focusing on economic growth

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Blue Ocean Sectors or companies that do not exist today Unknown market place Beyond competition Strategy to survive by creating new markets and

making competition irrelevant Created in Red Oceans by extending limits

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Black Swans

It is an outlier It carries extreme impact Human nature makes us concoct

explanations for its occurrence after the fact, making it seem explainable and predictable

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The Protective Approach

Focus on front-end loading Predict everything as accurately as possible Minimize financial risk Avoid surprises during project execution

Keep fighting in the red ocean Accept black swans

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The Offensive Approach

Live with risk throughout the project Postpone decision as long as possible Capitalize on emerging opportunities (risks) Stimulate agility – empower the PM

Move into the blue ocean

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Risk and Complexity

Risk

Small Large

Com

plex

ity

Sm

all

Larg

e

Traditional project management

Focus on structureü Top-downü Risk aversü Systematic

Focus on flexibilityü Bottom-upü Risk preventivü Creative

?

From Hartman

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Current Risk Management Thinking

Focus on predictability Fight uncertainty and risk Create risk buffers Exercise strong control

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The Tunnelling Concept (Taleb)

Neglect of sources of uncertainty outside the plan itself

Data that supports our proposition is embraced and utilized to further increase that support, while data that challenges it is ignored, dismissed

Reducing our ability to see outside the boundaries of our assumptions

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Tunnel Vision and Black Swans

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Barriers Against Influence

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Extending the Risk Picture

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Types of Risk

Operational Within control of the PM

Strategic Within control of the owner

Contextual External or interlinked with other projects

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Decision Model

f(x,t,y,z)=0

y

zx

t

Decision Model

Controllable factorsPotential actions

Irrelevant consequencesIrrelevant variables

Non-controllable factorsPotential states

Results/consquencesTarget variables

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Uncertainty and Risk

Action

Influence

Uncertainty Impact

Potential result

Impact

Impact

Opportunity

NatureStake-holders

Directly involved in project

Directly involved in project results

Indirectly influencing

Risk

Potential result

Potential result

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Decision Process

Results achieved

Problems identified

ObjectivesPolicies

Decisionpreparation

Decision methods

Decision factors

Inputs

Action

Action

Action Result

Result

Result

Approval

Final approval

Authorization

Yes

Yes

Yes

YesYes

NoNo

No

No

No

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Decision Factors

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The Bermuda Project Risk Triangle

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The Change Process

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The

Jou

rney

to c

hang

e in

beh

avio

r

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Extended Project Risk Navigator Components

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A New Approach The notion of the Bermuda Project Risk Triangle

including operational, strategic and contextual risks A change process leading from exploring via

adapting to delivering (illustrated as a journey) A framework for the Extended Project Risk Navigator

containing the three main components: Governance system, Decision process, and Strategic planning.

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Shifts in Mindset Required

From projects as deliveries - to means to enhance project business value

From viewing uncertainties as “evil” - to acknowledge the project nature being unique and uncertain, hence requiring dynamic strategies

From projects as known tasks to be accomplished – to embrace a continuum of known-unknown tasks to be executed

From viewing deviations from project baselines as inaccurate planning or inappropriate control – to acknowledgement of deviations being the rule and not the exception

1 Department of Production and Quality Engineering Rethinking Project Risk Management PUS Seminar,...

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