Categories: interviews
In this instalment of my occasional Ask the Experts feature, I speak to risk expert Wilhelm Kross, who is presenting this month at Project Zone Congress in Frankfurt.
Wilhelm will talk about Risk Management and
also deliver a masterclass on the challenges of mega-projects.
Wilhelm, thanks for talking to me. Let’s start by clarifying something you talk about in your work. What is the difference between a static and a dynamic risk framework?
A dynamic risk framework recognizes the fact that the world has not come to a stand-still while certain action takes place. It enables the reflection of what is commonly referred to as “the management perspective”. It reaches beyond the scope of reducing the current level of risk to the acceptable level of risk with a combination of risk transfer, operational risk, and strategic risk reduction measures, whichever proves to be effective and efficient. It is typically implemented with feedback loops and iterative approaches in order to help focusing on what truly is important, and why. Necessarily, a dynamic risk framework is future-oriented, and allows for the systematic capturing of new and evolving risk factors as and when they become conceivably relevant. It needs to cope with soft factors, and imprecise and uncertain information, which implies that a probabilistic approach is a “must”.
In contrast, a static framework is useful when the predominant focus of risk analytics and related documentation is the one of consistency in performance evaluation, or higher level portfolio aggregation in risk reporting.
OK, so which is better?
Both static and dynamic risk frameworks can be useful. They need to be designed for specific purposes though.
Thanks. One of the big things in risk management at the moment (in my opinion) is the understanding of how human interpretation affects risk. How much of a role do soft factors play in risk management?
Under certain circumstances it may be appropriate to ignore the relevance of soft factors in risk management, particularly when the main focus is comparative historical performance and consistency in risk analytics within a portfolio of activities. As and when the predominant focus is the one of designing and implementing risk reduction measures, preparing decisions, making trade-offs, or reaching beyond risk reduction into opportunity management, soft factors are what truly count.
Why is that?
The reasons are quite simple in that usually the response to a new risk factor or the design of a new risk management system commences in an environment in which certain data and information are lacking, or reflect an uncertain level of accuracy and partial transparency with regard to underlying assumptions.
“Hard data” risk analytics and number crunching as well as risk modeling and portfolio-level risk aggregation may follow. However, as and when it comes to decision making under uncertainty, decision making with numerous conflicting objectives, coping with a variety of stakeholder opinions and desires, or the implementation of risk reduction measures, usually “soft” cultural and human factors become dominant again. Besides the naturally limited human perception, time constraints and a variety of biases, usually, risk management in real life usually reflects a compromise which is designed and implemented by humans, to handle what is conceived feasible and sensible.
OK, so we can’t ignore the soft factors related to risk management. What's your top tip for project managers who want to be better at managing risk and reducing the financial implications of risk on their projects?
Unfortunately the financial dimension is not the only relevant one in integrated risk management. Neglecting other relevant factors invariably leads to sub-optimum decisions and action and avoidable mistakes.
Fair enough! You must have a couple of tips to share with us though.
There are two considerations which I believe to be of utmost importance, and which I typically observe to be underemphasized if not entirely neglected in real-life organizations. First, irrespective of the standard frameworks which have been established for the organization and its financial reporting, do consider the management perspective. This may involve setting up additional activities and tracking additional key performance indicators over and above the minimum requirements of the organizations at large.
Second, do focus risk reporting on the true needs of the target audiences, and adopt the explanatory wording accordingly. A member of the board of directors usually has entirely different needs than for example a quality manager, or an external stakeholder who may be the recipient of undesirable side-effects of the core processes. Moreover, in order to trigger decisions, the underlying chain of arguments may need to stress entirely different factors. And last but not least it should be noted that any form of risk documentation offers opportunities in that the minimum level documentation can be combined with a specification of the true mandate that the risk reporter would like to be offered, with all its must’s, nice-to-have’s, and exclusions.
That’s great, thanks Wilhelm.
The second half of this interview will be published next time, when Wilhelm and I chat about integrated risk management.
About my interviewee: Dr. Wilhelm K. Kross, Dipl.-Ing., MBA, Eur. Ing., PMI-RMP is an internationally recognised expert in the fields of risk and project management and a partner of Plejades and the Amontis Consulting network. His main focuses are the fields of applied risk management and related in-depth risk analytics and valuation techniques, (mega-)project structuring and financing, as well as operational crisis and turnaround management, particularly in complex larger scale crisis programs and projects.
Find out more about Project Zone Congress here: http://www.projectzonecongress.org.
About the author: Elizabeth Harrin is Director of The Otobos Group, a project management communications consultancy. Find her on Google+ and Facebook.
