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Rethinking Project
Risk Management
PUS Seminar, November 30, 2010
Professor Asbjorn Rolstadas
Norwegian University of Science and Technology
Department of Production and Quality Engineering
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Project Management - State of Art
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PMI driven
Main focus on delivery projects
Structured approach
Make a plan and stick to it
Manage deviations and changes
Avoid or manage risk
Department of Production and Quality Engineering
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All Projects Carry Risk
Scope
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Scope creep
Hope creep
Effort creep
Feature creep
From Wysocki
Time
Cost
Department of Production and Quality Engineering
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Uncertainty, Risk and Opportunity
 Uncertainty
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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
Department of Production and Quality Engineering
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Power to Influence
High
Stakeholders Create Risk
Hostage
Key Player
To be kept satisfied
To be involved
External Stakeholder
The Grey Eminence
To be kept informed
Low
To be briefed
Low
Level of Interest
High
Department of Production and Quality Engineering
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Traditional Risk Management
Risk
identification
Quantitative
analysis
Qualitative
analysis
Risk
control
Department of Production and Quality Engineering
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PMI Risk Management Processes
Describes 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
Department of Production and Quality Engineering
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Out of the Box Thinking
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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
Department of Production and Quality Engineering
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Red Ocean
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Competitive battlefield
All competitors present
Fighting to be the best and beat each other
Focusing on economic growth
Department of Production and Quality Engineering
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Blue Ocean
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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
Department of Production and Quality Engineering
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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
Department of Production and Quality Engineering
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The Protective Approach
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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
Department of Production and Quality Engineering
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The Offensive Approach
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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
Department of Production and Quality Engineering
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Large
Focus on structure
?
ü Top-down
ü Risk avers
ü Systematic
Focus on flexibility
Small
Complexity
Risk and Complexity
ü Bottom-up
ü Risk preventiv
ü Creative
Traditional project
management
Large
Small
Risk
From Hartman
Department of Production and Quality Engineering
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Current Risk Management Thinking
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Focus on predictability
Fight uncertainty and risk
Create risk buffers
Exercise strong control
Department of Production and Quality Engineering
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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
Department of Production and Quality Engineering
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Tunnel Vision and Black Swans
Department of Production and Quality Engineering
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Barriers Against Influence
Department of Production and Quality Engineering
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Extending the Risk Picture
Department of Production and Quality Engineering
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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
Department of Production and Quality Engineering
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Decision Model
Non-controllable factors
Potential states
Results/consquences
Target variables
t
y
f(x,t,y,z)=0
x
Controllable factors
Potential actions
Decision Model
z
Irrelevant consequences
Irrelevant variables
Department of Production and Quality Engineering
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Uncertainty and Risk
Potential
result
Impact
Opportunity
Action
Uncertainty
Potential
result
Impact
Risk
Potential
result
Influence
Nature
Impact
Stakeholders
Directly involved in project
Directly involved in project results
Indirectly influencing
Department of Production and Quality Engineering
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Decision Process
Approval
Inputs
Results
achieved
Decision
factors
Action
Yes
Result
Final
approval
No
Authorization
Problems
identified
Decision
preparation
Objectives
Policies
Decision
methods
Yes
Action
Yes
Result
No
No
Action
Yes
No
Yes
Result
No
Department of Production and Quality Engineering
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Decision Factors
Department of Production and Quality Engineering
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The Bermuda Project Risk Triangle
Department of Production and Quality Engineering
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The Change Process
Department of Production and Quality Engineering
The Journey to change
in behavior
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Department of Production and Quality Engineering
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Extended Project Risk Navigator
Components
Department of Production and Quality Engineering
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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.
Department of Production and Quality Engineering
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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
Department of Production and Quality Engineering