Overcoming Mental Traps Within Risk Management
We can be blind to risk management in complex projects. In fact, relying solely on our experience, desire for gain and tunnel vision for success, can make us less aware of potential threats that later engulf us. Neither the pandemic nor the financial crash of 08/09 was foreseen by ‘experts’. In hindsight though, we know that these were both bound to occur in some way.
In my first blog, I talked about risk appetite, risk identification and managing of low-level risks in this one I will explain the problems of not understanding asymmetry, the need to use experts with care and the experience trap.
1. Managing the risk of asymmetry in complex projects
Complex projects carry a high level of asymmetry. We may assume that given 100 projects a similar amount may be later or earlier than a planned due date. However, a survey of experienced project managers (1) reported a marked skew to the right in terms of projects delays, even if their own models didn’t utilise this effect. This concurs with a research report for large complex transport infrastructure projects in the Netherlands, which showed marked asymmetry in cost overrun (2).
Distribution of cost overruns in Dutch transport infrastructure projects
Another report, this time a survey of 900 large construction projects in India shows a high deviation from mean asymmetry in time and cost on almost all projects types (3).
If you are a project manager/director how should you treat this well known phenomena of asymmetry? If a contractor says the following to you, what questions would you ask?
95% of our projects are on time and inside budget
The interesting thing is the 5% that were not on time or budget. So the questions a good project manager should ask is:
How bad was the 5% of delay overrun by and what was the reason for the delay?
The skew of delay (days, months or even years) and the reasons for the delay will determine the real risk, if you take on this contractor.
2. The problems of Optimism Bias when managing unknown risk
The natural reason we wish to run a project is that we see value in its delivery. Humans are naturally optimistic when it comes to any ‘project’ whether organisational or personal. We anticipate some problems but not all. We also don’t by definition see ‘unknown’ risks. The result is that we don’t build in enough contingency or redundancy to cope with managing risk.
So how do you manage Optimism Bias?
- Consider more ‘Network’ (hidden interdependency) effects: The impact of joins between different elements of work, resources and capacity is often difficult to see during planning, and only become apparent once the project is instituted. On a client project for example, the impact of key contractor staff taking only a few days of holiday wasn’t considered but ended up causing delays as delivery windows were missed.
- Plan the ‘opportunity’ in case of delay: Even if we are optimistic we should have a contingency plan for delays. Re-planning once things go wrong, takes up much effort and often resources for delivery are not available. For example, when a programme I worked on went only slightly over-budget, it meant a bigger governance processes, more reporting, and escalation, that itself made the project hard to retrieve. Conversely on a client I worked on, I observed that they had already planned the next opportunity inputting in some IT infrastructure as part of site development, in case a milestone was missed. This meant resources were already planned and lined up, ready for the ‘opportunity’ of delay.
3. The Overuse of a single expert to manage new risk
Experts can get it wrong or not provide an optimum solution. In medicine getting a second opinion can often make a difference. For example, a report by Yale medicine in the US showed that 21% of patients who sought a second opinion had their diagnosis changed (4). It also showed that 43% of patients had their cancer diagnosis changed when reviewed by a multi-disciplinary board.
For a new build project for a site in Wales, an architect stated that it was permissible to build over the 750mm diameter sewer, but my client later found via their water authority that the regulations had changed. It meant planning permission originally submitted on advice of the architect had to be redone. The result was a whole new site design which meant a relocation of a car park, and a costly 6 month delay.
One of the main reasons why experts can get it wrong is that their expertise can make them overconfident, and somewhat blinded, ignoring new events or circumstances or practical realities in risk management.
How can you reduce reliance of a single expert for your risk management process?
- Get a multi-disciplinary view for complex risk assessment. Working in collaboration with a team-based approach to risk and its total expertise/experience will result in a wider range of risks identified as by the maxim, “sum is greater than the parts”.
- Ensure depth and scale. If you do hire an expert, ensure they have both depth and scale of experience. We know from research (5) that people who know many things well are always better at prediction than people who know one thing very well or alternatively get a second opinion when required.
We worked with two experts, on a complex digital project, one to be part of the core design and another as assurance of the completed design. This meant an additional small cost of assurance gave the project more focus, with the project manager acting as mediator and maximizing the benefit of two distinct designer roles.
4. Avoiding the experience trap of managing the overreliance of risk
No person ever steps in the same river twice – Heraclitus of Ephesus, Greek Philosopher (535 BC – 475 BC)
The join between your past experience and your new project will always be different, risks are often created as complexity increases, in spite of experience.
How do we stop falling into the trap of the overreliance on experience?
One way is to put more thought into the project and become aware of the wider landscape of your project through risk management. Ask yourself some questions:
- What does the customer and stakeholders want from this project (tangible/intangible)?
>> It may be completely different to your last project especially if the functional delivery is the same!
2. What’s unique about this project?
>> Where do you need to find out more, even with your experience?
3. What changed in the outside world?
>> Technology/Platforms/Standards etc. may mean that you will have to deliver this project in a different way introducing risk and opportunities.
4. How do they do things around here?
>> The culture of your client may itself create new risks or opportunities.
On a large government project I worked for, the culture just between two departments, was very different. One was collaborative and moved quickly and the other worked more intellectually and with deeper consideration of each step. My project touched both areas therefore I had to adapt my style to suit both cultures, for the former we worked on developing milestones together, while keeping in mind the big picture, and assessing risk collaboratively. For the latter I presented detail plans and risks, asking for critic and improvement. Working to just one method would have not been conducive to managing risks, and would have created blind spots for this complex change project.
In summary, if you are a programme director/manager or sponsor, you manage risk better by understanding risk appetite, risk identification process and deeper thought around low level risk (see my Blog 1).
Be aware of the asymmetry in project outcomes, optimism bias and overuse of a single expert and overreliance on an individual’s experience.
Please contact us at kinetik to help us with your risk management. We can carry out diagnostics, capability building and framework building of your risk processes.
1. Grey, S. Origins of schedule overrun. Paper presented at PMI® Global Congress 2010—Asia Pacific, Melbourne, Victoria, Australia. PMI, 2010.
2. Cantarelli, C. C., Molin, E. J. E., van Wee, B., and Flyvbjerg, B. Characteristics of cost overruns for Dutch transport infrastructure projects and the importance of the decision to build and project phases. Transport Policy, 2012.
3. Singh, Ram. “Delays and Cost Overruns in Infrastructure Projects . Extents, Causes and Remedies. Centre for Development Economics”. Delhi School of Economics, 2009
4. Katella, K. “Can a Second Opinion Make a Difference?” Yale Medicine, 2020
5. Greg Satell. “Why Experts Always Seem To Get It Wrong. Forbes Magazine (online), 2014
6. Taleb et.al. “The Six Mistakes Executives Make in Risk Management”. Harvard Business Review, 2009.
7. Braimah, N. Construction Delay Analysis Techniques—A Review of Application Issues and Improvement Needs. Buildings, 3, 506-531, 2013