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Analyzing Risks “By the Numbers”

 

A “Quick & Easy” Approach

to Quantifying Complexity

 

ADVISORY

By Dr. Kenneth Smith, PMP

Honolulu, Hawaii

& Manila, The Philippines


All too often Risk Analysis is given short shrift by impatient project sponsors, executives, and project managers who want to get on with the job and defer worrying about possible problems until they arise.  This stance is shared by fearful project planners with good intentions who — in their desire to facilitate favorable approval paper over problems by distorting data to obscure or minimize negative aspects; or worse, utilize the bureaucratic ‘burial’ tactic of completely ignoring potential problems when presenting their proposals to higher levels.

Unfortunately, when known risks are trivialized during planning — or ignored outright as ‘black elephants’[1] they do not cease to exist.  Problems simply lurk, awaiting the opportunity to surface during implementation – which practitioners attribute to the ubiquitous gremlin Murphy.Any hitherto “unforeseen hazards” then have to be confronted and dealt with as ‘damage control’ by an unprepared Project Manager. This phenomenon occurs so often it has even been codified as Murphy’s Law.[2] Then, as many a distracted, unprepared & ill-equipped manager has experienced and ruefully observed “When you’re up to your ass in alligators, it’s easy to forget you came to drain the swamp!” Such initial neglect usually necessitates project extension & cost increase; or even a follow-on project to clean-up and rectify any “unintended consequences.”

Apart from those black elephants — which we may choose to ignore at our peril — not all risks can be foreseen, anticipated and appropriate provision made in the project for their avoidance or mitigation. As the 18th Century Scottish poet Robert Burns once wrote “The best laid schemes o’ mice an’ men gang aft a-gley;[3] a sentiment about which the 19th Century Prussian military theoretician Carl von Clausewitz later penned “three quarters of the factors on which action in war is based are wrapped in a fog of greater or lesser uncertainty.” Today — in harmony with the black elephant metaphor for foreseeable problems – the ‘fog of war’ phenomenon has morphed into ‘black swans’[4] a-swimming in the project pool; defense against which the only recourse is provisioning a-forefront with indeterminate monetary reserves, and schedule buffering.[5]

To its credit, earlier editions of the Project Management Institute’s “Guide to the Project Management Body of Knowledge” (PMBOK)i.e. before the current 7th Editiondid a good job of elucidating a systematic process for identifying and assessing risks, as well as some approaches for dealing with them.  So, rather than reiterate the PMBOK coverage, my objective here is to supplement their recommended tools and procedures to facilitate understanding and application by others – based on my experience.

The essence of Risk Analysis is first to determine the amount of ‘Risk Exposure’ presented by a particular situation – which is a function of 1) the probability of it occurring, and 2) the extent of its impact in some manner –usually detrimental – if it should occur, viz.

                              RISK EXPOSURE = Probability x Impact

then (3) to prioritize the risks so identified by ranking them for appropriate disposition.

Since the probability of risk occurrence is usually highly subjective and impacts can take many different forms, quantification of their qualitative naturein some manner – is essential.

The PMBOK advocates using a Probability x Impact MATRIX to develop a quantitative Risk Exposure “PIM” score of pre-identified qualitative risks.  PMI further recommends such scores be presented as percentages for easy comparison, priority attention and management action.  While the matrix approach per se is laudable for developing ratings and rankings, I found that initial assessment of qualitative situations in percentage terms is impractical — being highly subjective by different raters, and consequently prone to disputation by others.  It is impossible to discriminate between subjective differences on a 1 to 100 scale and attempting to ‘fine-tune’ distinctions between 76 and 79 percent – for instance — in a subjective situation is simply ludicrous.   Indeed, even the limited ‘1 to 10 Pain Scale’ employed by physicians is frequently abused by patients who — whenever their need for pain-alleviating medication is questioned — tend to over-react and report at the extremities rather than in the moderate middle ranges.

To resolve this issue, while simultaneously satisfying the desire to make assessments in percentage terms, I developed a simplified 5 point Probability x Impact matrix rating scale:

More…

To read entire article, click here

How to cite this article: Smith, K. F. (2022).  Analyzing Risks “By the Numbers”: A “Quick & Easy” Approach to Quantifying Complexity, PM World Journal, Vol. XI, Issue VIII, August. Available online at https://pmworldlibrary.net/wp-content/uploads/2022/08/pmwj120-Aug2022-Smith-analyzing-risks-by-the-numbers.pdf


About the Author


Dr. Kenneth Smith

Honolulu, Hawaii
& Manila, The Philippines

 

 Initially a US Civil Service Management Intern, then a management analyst & systems specialist with the US Defense Department, Ken subsequently had a career as a senior foreign service officer — management & evaluation specialist, project manager, and in-house facilitator/trainer — with the US Agency for International Development (USAID).  Ken assisted host country governments in many countries to plan, monitor and evaluate projects in various technical sectors; working ‘hands-on’ with their officers as well as other USAID personnel, contractors and NGOs.  Intermittently, he was also a team leader &/or team member to conduct project, program & and country-level portfolio analyses and evaluations.

Concurrently, Ken had an active dual career as Air Force ready-reservist in Asia (Japan, Korea, Vietnam, Thailand, Indonesia, Philippines) as well as the Washington D.C. area; was Chairman of a Congressional Services Academy Advisory Board (SAAB); and had additional duties as an Air Force Academy Liaison Officer.  He retired as a ‘bird’ colonel.

After retirement from USAID, Ken was a project management consultant for ADB, the World Bank, UNDP and USAID.

He earned his DPA (Doctor of Public Administration) from the George Mason University (GMU) in Virginia, his MS from Massachusetts Institute of Technology (MIT Systems Analysis Fellow, Center for Advanced Engineering Study), and BA & MA degrees in Government & International Relations from the University of Connecticut (UCONN).  A long-time member of the Project Management Institute (PMI) and IPMA-USA, Ken is a Certified Project Management Professional (PMP®) and a member of the PMI®-Honolulu and Philippines Chapters.

Ken’s book — Project Management PRAXIS (available from Amazon) — includes many innovative project management tools & techniques; and describes a “Toolkit” of related templates available directly from him at kenfsmith@aol.com on proof of purchase of PRAXIS.

To view other works by Ken Smith, visit his author showcase in the PM World Library at https://pmworldlibrary.net/authors/dr-kenneth-smith/

[1] Black elephant: a known problem we choose to ignore.
[2] Murphy’s Law: Anything that can go wrong will go wrong, and at the worst possible time.”
[3] A-gley – i.e. go awry
[4] Black swan: an unknown problem – which consequently cannot be anticipated, and only dealt with after-the fact.
[5][5] My May 2022 article Schedule Slippages, Root Causes & Recommended Remedies, PM World Journal, Vol. XI, Issue V, describes a tool and technique for partially addressing both of these types of problems.