Upside risk management
Posted by APM on 17th Jan 2012
The presenter of the January event wasPeter Simon of Lucidus Consulting.The topic he addressed onwas Upside risk management Is upside (opportunity) risk management counter-intuitive and if not why doesnt anyone take it seriously? The event was held at the Royal Hong Kong Yacht Club with an attendance of 29 members and guests. It was short presentation followed by a facilitated discussion of the issue around upside risk management.
Peter has over 30 years of experience as a project management consultant and practitioner across all industries and business sectors. In his early career, he worked for organisations across the oil and gas, utilities and transportation sectors as a project management and project services practitioner. Inhis later career, he has excelled in project management consultancy and the training arms of the PM Professional group of companies. Peter has published many papers on project management, including risk management and resource management.
Peter began the interactive presentation by asking the audience what risk meant to them. The most common answers were: change, delay, uncertainty, things that go wrong or right and variation. Following that, Peter offered some definitions of risk. A simple one was: Risk is an effect of uncertainty on objectives. Related to a project, risk, by definition, is an uncertain event or set of circumstances that, should it or they occur, would have an effect on the achievement of one or more of the projects objectives.
Peter then asked the audience to think about If you only manage the `things` that could have a detrimental impact on your project objectives (in particular time and cost) when it comes to meeting those objectives what is the best you can achieve? Peter emphasized that risk was a threat and, at the same time, an opportunity.
At this juncture, a Chinese member echoed that the word risk, in Chinese, was written as , which was made up of two characters. The first character means risk and the second one means opportunity. Risk as a subjectively or personally experienced emotional state, people under conditions of uncertainty pre-program themselves to remain positive. They believe they can do better by looking at the positive risk so that the mind sets could be changed and stimulated.
Peter went on and stated three facts:
Opportunity/upside risk management is counter-intuitive
Most opportunities/upside risks are choices
It is difficult (impossible) to use the same process for both upside/opportunity and downside/threat risk management.
People tend to look positive and seldom come to negative risk. All too frequently in reality, they have their own subjective realities and definition of risks, which prevent them from understanding differently the objective definitions of risk.
Peter asked the audience three questions:
What are the challenges associated with managing opportunities (upside/positive risks)?
What points of confusion are there between opportunities that are choices versus things that might happen by chance?
What are the benefits/disbenefits of carrying out upside/opportunity management and downside/threat management as part of the same risk management process?
The reported challenges were the opportunistic views, being optimistic about the future, risk being equal to negative mindset or emotional, stop using the work risk or fear, and in a related phenomenon, risk-aversion, and the close relationship between risk and opportunity. It was suggested that opportunities were choices, which had to be managed as well. We can respond to some of these choices. But humans have a strong tendency to adapt to their existing environment and react only to perceived changes. We know design change is a risk to developers. Nonetheless, we might get the most effective team of best people to have a positive effect on a projects objectives. In the presentation, some tended to think that the cultural attitude towards risk was important and that they had to take cultural risk.
Peter summarised the challenging topic as: All current definitions of a project risk suggest that a risk can be both positive and negative, i.e., a risk can have a beneficial impact on one or more of the projects objectives or a detrimental impact. However, based on recent research, very few organisations identify upside risks as part of their risk management process, and if they do, they are actually not risk events but choices that can be made (or not).