Reward and Risk - why not?

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I'm a risk enthusiast who likes to discuss techniques, tools and models—and use risk as a practical means to make better decisions in project environments. Join me on the ride!

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Reward and Risk - why not?

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Is that expression common for you? Have you ever heard it like that? I have not and I guess you haven't either. Risk is seen as a negative matter, as a downside, as a hurdle, as a problem to be dealt with. Let us look this question a little closer on this post.

We are constantly warned of the risks in the world. It is something to be careful about. It is something to fear, to work around, to avoid.

Whenever I participate in a risk workshop, somebody says "please, don't forget the opportunities!" In fact, PMBoK states that "project risk management aims to exploit or enhance positive risks (opportunities) while avoiding or mitigating negative risks (threats). A critical success factor for the "Identify Risks" process is the "explicit identification of opportunities" also stating that "the identify risks process should ensure opportunities are properly considered". This is in the Practice Standard for Risk Management, page 38. Nobody needs to tell us to "explicitly identify threats". It is engraved deep into our minds...

Therefore, we need to take a chance, go forward and, well, live a little! I go back to portfolio optimization concepts, when we stablish the efficient frontier for a set of investments, combining risk and return. Of course we should take risks with caution and we should assume risks only should they provide further return for us. The admittance of risk brings return as I said before.

So why can't we see the bright side of life when we are identifying risks? I got one wild guess here.

Could it be possible that we enhance our business case so much when we are trying to get the green light from the board that we already start planning a semi-impossible project and already absorbed the opportunities in the base case? Or are we under so much pressure that we do not allow for things to be even slightly better? It is something to be considered.

Whenever possible, we try to monetize things and bring the decision to a single indicator, the Net Present Value of the Cash Flows, the Internal Rate of Return or another one, but we should always consider the other dimensions. Safety, Social Implications, Governance, Health, Environment, and such.

What I take from my quantitative risk analyses in the last decade or so is that when we consider the risk events, uncertainties, imprecisions and such, we end up so far from the baseline and the agreed upon plan, it is almost a lost battle before it begins! Distributions are always skewed to the downside, reflecting the tendency for things to cost more, to take more time, to use more resources, etc.

Preparing a more feasible business case and have It thoroughly analyzed by a third party with no links to the project area seems like a good idea, but is it actually done by most companies, or people? Or we are just “hoping for the best but expecting the worst”, as Alphaville would say?

No matter what, we should always try to have a realistic point of view of our project, and adjust our plan to match the risky side of life. There is nothing wrong with having a challenging date, but not an impossible one. And make some room for opportunities, for Pete’s sake!

What do you think? Join the discussion! Leave your comment below and I’ll reply. Thank you for reading!

Posted on: August 08, 2018 09:38 AM | Permalink

Comments (7)

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Great points. Thanks, Guilherme. Definitely on to something there - as in many of the opportunities have been identified and used as leverage in the business case.

"Preparing a more feasible business case and have It thoroughly analyzed by a third party with no links to the project area seems like a good idea, but is it actually done by most companies or people?"......reading this part makes my day. It is important to share your Business Case to the third party for review to assist eliminate what I call 'The Selfish-Risk'.

Guilherme, deep but true thoughts of an every day topic.

That's an interesting take on risk. Thanks.

Very interesting thoughts, thanks

The risk is difficult for most to be seen as a positive thing. When that is mainly positive.

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