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!
First Things First
project risk management
Categories: project risk management
Hi everybody! This is my first post, so I think I should introduce myself and some of the topics I’d like to discuss in this blog. My name is Guilherme Calôba and I am from Rio de Janeiro, Brazil. I am an Industrial Engineer, a multi-purpose kind of professional that, as we say in Brazil, “plays in the eleven positions in a soccer game”.
I have built an academic career prior to working in a company in a full time job. My time with the university was excellent and I had the opportunity to deal with several companies during this period of my life.
I was introduced to risk in 1998 and I’ve been working with that ever since. I took my Master’s and my Doctor’s degree in Operations Research and, after that, I started working in an oil and gas company.
My experience with projects begun there, and I did a specialization course and did my PMP exam. I am a proud Project Management Professional since 2008! I started out in the R&D center, moving up to the exploration and production area, where I currently make my moves. Most of my latest work involves scheduling and quantitative risk assessments, lots of Monte Carlo simulations, but I am truly fascinated by the whole process, the integration between qualitative and quantitative and the tools we can use to better represent, analyze and support decision-making.
I said it many times; risk is a beautiful thing, as long as it helps the project. It helps when you are protecting yourself from threats, it helps when you are embracing opportunities and it certainly helps when you have a few courses of action and you need to choose just one.
Among the topics I am considering covering on this blog, we have:
I would like really appreciate your input on your favorite topics to address here. As anything in Project Management, this blog can only gain with your valuable contribution. I will try to keep my contributions here shorter than the white papers I’m publishing (you can check them out, too!)
To finish this first post, I would like to add a little something.
This blog went live July 26th and as of today, July 31st, I hadn’t posted anything yet. So, you see, it was a risk free environment. I had nothing in it, that is, nothing ventured and, of course, nothing gained. Completely stable, boring and void. Nobody came to see, obviously! Nobody wants to see a blank page when they come for information, and nobody wants (to be part, to sponsor, to be a stakeholder, to manage) a project with no objectives, no goals and no deliverables.
What I am trying to say here is that when you take on a project, a venture, a business opportunity, you are already subject to risk. You could easily put your money on a low yield investment (or under your mattress) and have no financial risk whatsoever. But companies do not grow doing so, projects don’t flourish without a little risk taking and the humanity cannot thrive without considering that results, broadly speaking, may be quite different from what we expect them to be. Risk is life, encompassing uncertainty, opportunities, threats, all of that. Not so boring, for sure!
Thank you for reading! I appreciate your feedback on this and I hope you suggest more themes for us to discuss!