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  • Risk Managment & Project Management

    Posted on April 7th, 2009 Nelson Bodnarchuk No comments

    Risk management within project management go hand in hand. However, usually risk management isn’t applied very well to project management. Risk affects our attitude towards a project, at least it does for me.

    Since risk is all around us, I break it down into two categories, controlled risk and uncontrolled risk. For me, controlled risk is choosing to play ice hockey with the Chiefs once a week, because I believe that I have a level of control over what I’m doing on the ice (although sometime it’s debatable), so I feel that I am controlling the level of risk that I’m exposing myself to. Honestly though, once I step in the ice and the puck drops there’s not much that I can do to control what the other 11 skaters are going to do on the ice, hence my use of a full cage…gotta protect that money maker. Another more common example would be wearing a seat belt while driving. Really what we’re doing, when we perform these activities with the safe guards that I mention above, is mitigating the risk within the activity so we feel more comfortable while performing that activity.

    Usually when risk and the probabilities of negative events occurring are reviewed, people choose their behavior based on the way the scenario is framed and not on an actual evaluation of the risk. A good example of this is the fear of flying versus driving, I won’t go into the details, but when comparing transportation accidents, stats show that flying is in the 6 Sigma range of defects, while driving is much lower (Defects being fatal accidents). So statistically speaking there are probably more people afraid of flying than driving, while more people every year are injured, or worse, in car accidents compared to plane crashes. However, most of us see the situation framed as driving being much more safe because car travel is more common.

    People have been dealing, as well as attempting to mitigate risk, for centuries. Daniel Bernoulli suggested, in a 1738 article, that that when you have a choice of bets or investments you should choose that with the highest geometric mean of outcomes, or more widely know as the “best bet” calculation. The “best bet” calculation allows one to make a more informed decision when risk is involved, even though it’s impossible to make the best decision in a risky situation.

    Frequency is another factor that affects our ability to properly assess project risk. More frequent events are usually overlooked, to an extent, compared to catastrophic events. A good example of this from my experience would be the VFD that kicks out every night (for 14 months) during the graveyard shift, usually after the maintenance crew has clocked out for the night, versus the one-time catastrophic failure of the waste water pump. Both cost roughly the same in plant down time, but because one shut the plant down for an entire shift it got all of the attention versus the one that chipped away at plant up-time like water on a stone. It’s almost as if we sometimes eliminate the common parts of the risk from our consideration because it seems insignificant, or we fail to see them altogether because “it’s always been that way since I’ve worked here”. My point here is that both situations should be evaluated and the risk mitigated, as correcting them both are necessary for the success of the plant situation.

    Many times we fail to identify all risks involved in a situation because we find the alternative we like or have found three or four risks, however this can lead to incomplete or biased risk identification. I speak from personal experience and am guilty of this many times over. So be sure to always investigate all possibilities, doing this may allow you to avoid your project(s) from sufferring greater consequences from risk events in the future.

    It all comes down to the good old carpenters saying “measure twice, cut once“.