Project Risk VS. Organisational Risk
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Project Risk VS. Organisational Risk

Projects are complex undertakings that require careful planning and management in order to achieve their objectives. According to David Hillson's book, project risk management has unique characteristics that set it apart from general organizational risk management. These characteristics include the complexity of the project, the assumptions and constraints that must be navigated, and the people and stakeholders involved. Additionally, change is a constant factor in project risk management and must be carefully managed in order to avoid setbacks. However, despite these challenges, projects can be designed with a deliberate approach that takes into account the objectives and rewards that are at stake. By embracing risk and carefully managing it, projects can be opportunities for growth and achievement that have a positive impact both on the organization and the wider external environment.

Good processes does not guarantee good Risk Management

Having a good systematic process in place doesn't always guarantee good risk management. However, project managers who adopt a systematic approach are typically better informed and better positioned to handle risks than those who don't. It is equally important to create a culture that fosters openness to risk. Simply going through the administrative processes without challenging your thinking and acting on your analysis won't suffice.

Research by Kutsch Elmar suggests that in some projects, project risk management is hindered by deliberate ignorance of project managers. Factors like untopicality, undecidability, and utility of risk-related information, characterized by taboos and suspension of belief, contribute to making risk management an administrative exercise with little or no impact on the project outcome. If ignored by project managers, irrelevance can render project risk management not only ineffective but also counterproductive.

The Australian/New Zealand Institute of Insurance & Finance (ANZIIF) launched its Risk Management Faculty in Sydney in September 2013. Dr. David Hillson, also known as The Risk Doctor, was the guest speaker at the launch event. During his talk, David challenged the audience's limited thinking about risk and explained how adopting a broader concept of risk can lead to more effective risk management, resulting in more successful projects and businesses.

“Black Swan” and “Perfect Storms”

The Black Swan Theory developed by Nassim Nicholas Taleb explains the significant role of rare, hard-to-predict events that are beyond normal expectations in history, science, finance, and technology. It highlights the non-computability of the probability of consequential rare events using scientific methods and the psychological biases that make people blind to uncertainty and unaware of the massive role of rare events in historical affairs. Taleb criticized our ability to predict the future and our over-reliance on forecasting and measuring risks by projecting historical data. 

The term "perfect storm" refers to an especially bad situation caused by a combination of unfavorable circumstances that result in an event of unusual magnitude. The term is also used to describe an actual phenomenon that happens to occur in such a confluence, resulting in an event of extreme impact and retrospectivity predictability. These metaphors are used to describe events that are rare, extreme, and unlikely, and they are the unthinkable. 

However, data collection to assess risks is problematic, and it may not identify black swans. Poor use or a disregard for historical information has made many organizations miss the potential for ‘Perfect Storms’. These terms are also used to avoid taking on risk management for some industries and projects.

In his book "The Black Swan: The Impact of the Highly Improbable," Nassim Nicholas Taleb discusses the central theme of the book, which is the power of randomness and its impact on predicting the future. He draws on his 2-decade long experience in derivatives trading, philosophy, and mathematics to provide insights into the dynamics of history, inferential claims, stoicism, non-hedonic happiness, probability theory, statistical physics, opacity & incomplete information in economics, and cognitive science.

Taleb is a researcher at the London Business School, Deans Professor in the Sciences of Uncertainty University of Massachusetts at Amherst, Fellow in Mathematics in Finance, Adjunct Professor of Mathematics at the Courant Institute of Mathematical Sciences of New York University, and Chairman, Empirica LLC. He has held senior trading positions with trading houses in New York and London, operated as a floor trader before founding Empirica LLC, and has an MBA from the Wharton School and a Ph.D. from the University of Paris. He is the author of Dynamic Hedging, Fooled by Randomness, and The Black Swan.

For more information on the Black Swan Theory, you can watch Nassim Nicholas Taleb's discussions on the topic at https://youtu.be/BDbuJtAiABA and https://youtu.be/g0ShuJ5Maz8. Also, read about The Fourth Quadrant: A Map of the Limits of Statistics and visit Nassim Nicholas Taleb's Home Page.

Readings and Resources

  • PMBOK, Schmimbock - Hatfield, Michael (Hatfield, Michael, 2007) [Hatfield, M 2007, 'PMBOK, Schmimbock', PM Network, January, Business Source Complete, EBSCOhost, viewed 8 November 2012.]
  • Project risk management - Project Management Institute (U.S.) (Project Management Institute (U.S.), 2013)
  • 10 golden rules of project risk management - Jutte, Bart (Jutte, Bart, 2000) [Jutte, Bart ‘10 Golden Rules of Project Risk Management’ Project Smart 2010-2011 ]
  • Risks and projects - Hilson, David (Hilson, David, 2009) [Hillson, David. Managing Risk in Projects. Abingdon, Oxon, GBR: Ashgate Publishing Group, 2009 (eBook)]
  • KPMG Avoid Major Project Failure - Turning Black Swans White here
  • Chapter 11 of PMBOK® Guide (5th edition). PMBOK® Guide (5th edition). Chapter 11 of Introduction PP 309-353 or Read Chapter 11 of PMBOK® Guide (4th edition). Introduction PP273-276
  • AS/NZS ISO 31000:2009 Risk Management - Principles and Guidelines PP1-7 Section 1:Scope, Section 2: Terms and Definitions, Section 3: Principles. 
  • Ward, Stephen, & Chapman, Chris 2008, ‘Stakeholders and Uncertainty in Projects’ Vol 26, Issue 6, Construction Management and Economics PP567-577
  • The UK equivalent to the Australian Standard - Risk Management - Management of Risk (M_o_R®) 
  • PDF version from STS Sauter Training and Simulation in Switzerland which also adds in ISO31000 comparisons: PMI 'Practice Standard for Project Risk Management' (2009). This is available for PMI members free see http://www.pmi.org/en/PMBOK-Guide-and-Standards/Standards-Library-of-PMI-Global-Standards.aspx This related to the 4th edition of the PMBOK guide
  • Chapman, C. B.; Ward, Stephen., 2003, Project Risk Management : Processes, Techniques, and Insights. Hoboken, NJ John Wiley & Sons, Ltd. (UK).
  • "RAMP – Risk Analysis and Management for Projects", site: http://www.zurich.co.uk/NR/rdonlyres/E0E97535-DD8D-4B72-910C-D05DA0AA52BD/0/RAMPInformation.pdf
  • "Risk Factor Analysis--A New Qualitative Risk Management Tool", www.lanl.gov/orgs/d/d5/documents/risk-fact.pdf
  • Jutte, Bart ‘10 Golden Rules of Project Risk Management’ Project Smart 2010-2011 http://www.projectsmart.co.uk/10-golden-rules-of-project-risk-management.html
  • Hillson, D 2009, Managing risk in projects, Gower Pub, Farnham, England. P29
  • Taleb, Nassim Nicholas (April 2007). The Black Swan: The Impact of the Highly Improbable (1st ed.). London: Penguin. p. 400. ISBN 1-84614045-5. Retrieved 23 November 2012
  • Junger, Sebastian 2000, The Perfect Storm. New York: W. W. Norton & Company. p. 38.
  • Paté‐Cornell, E 2012 'On “Black Swans” and “Perfect Storms”: Risk Analysis and Management When Statistics Are Not Enough', Risk Analysis, vol. 32, no. 11, pp. 1823-1833. also available via this address:  http://onlinelibrary.wiley.com/doi/10.1111/j.1539-6924.2011.01787.x/pdf/MEP.%20black%20swans%20and%20perfect%20storms.Rev5.Dec.2011.pdf 
  • Kutsch, Elmar and Hall, Mark 2010 ‘Deliberate ignorance in project risk management’ Journal of Project Management Volume 28, Issue 3, April 2010, Pages 245-255

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