The 10 Billion Dollar Butterfly

 

As a service to my ProjectManagement.com readers, I read other PM-oriented magazines, journals, websites and blogs, usually just to make sure ProjectManagement.com is the best among them (it is), but other times I like to see what passes for the current conventional wisdom, to see if there’s anything really easy to mock. And the gift that keeps on giving, somewhat similar to “Weird” Al Yankovich consistently parodying Michael Jackson songs, is the risk management industry.

The pieces I read aren’t by amateurs, either. They’re usually written by well-known risk management experts. These columnists and bloggers aren’t stupid, uneducated, or naïve – they’re just wrong, and the fact that the vast majority of what passes for risk management-derived insight is actually intellectually vacuous can be established with a few simple mental exercises.

But first, a little background on Management Information Systems (MISs). They methods they use to convert data into usable information can all be grouped into one of two categories: feedback, and feed-forward. Feedback systems use actual data, observable, quantifiable and verifiable elements of fact that have already occurred. The information these systems deliver is fairly reliable, and includes such MIS stalwarts as the General Ledger, Critical Path, and Earned Value methodologies. The main issue with these systems is timeliness – the older the information, the less useful it is, meaning that during the time it takes to collect the data, process it into information, and deliver the information, its usefulness is eroding.

Conversely, feed-forward systems are based on what someone believes is going to happen in the future. These systems are not considered reliable, since we don’t know what is going to happen in the future. For the record, all risk management techniques, including decision-tree, Monte Carlo, and risk classification, fall into this category. By the very nature of risk management techniques, they are inherently unreliable.

Next up on the genuine science that stands athwart of risk management theory is Metcalf’s Law, also known as the Butterfly Effect. Metcalf’s Law stipulates that, in large networks with high levels of interconnectivity, relatively small changes in some nodes has the capacity to initiate large, even cataclysmic changes through a cascading effect on other parts of the network, even those previously considered remote. Hence the nickname, summarized by the rhetorical question “If a butterfly flaps its wings in Brazil, does that cause a hurricane in Texas?” Manifestations of Metcalf’s Law occur all the time, including blogging. Take two PM bloggers at random, and total their monthly hits – let’s just use 10,000. There’s absolutely no way each blogger gets around 5,000. One will invariably get 9,000, the other 1,000. That’s just the way networks perform. But risk management is entirely predicated on the idea that the average – schedule duration, cost, whatever – parameter among analogous activities is a reliable data point, from which an expected future can be extrapolated. Metcalf’s Law says otherwise.

But that doesn’t stop the risk management types from trying, no sireee. One estimate of the value of the risk management industry worldwide puts it at over ten billion dollars – that’s $10,000,000,000. And their assertions invariably bend towards asserting that any cataclysmic event could have been foreseen – and, therefore, avoided – if there had only been sufficient risk analysis performed.

However, as we have seen, Metcalf’s Law stands in direct contradiction to current risk management theory. Since hurricanes over the centuries have certainly caused more than $10 Billion in total damages, we have a simple choice before us: either ignore the risk managers when they try to tell you how valuable their speculations (strikethrough) analyses are, or else find that *&^$% butterfly in Brazil, and kill it before Galveston gets creamed again.