How to Manage Project Opportunity and Risk

Preface and overview by the authors

Projects are about the planning and delivery of beneficial change. This beneficial change may involve the creation of a desired physical asset or some less tangible organizational change. In either case, the pursuit of opportunities is an inherent central concern. Throughout any project what can be achieved is subject to uncertainty and risk, both of which require careful management alongside an ongoing search for opportunities to improve performance. This book explains how and why uncertainty management should be employed in all projects to pursue all opportunities in the face of uncertainty and risk. This approach goes well beyond what can be achieved with most risk management practice.

The target readership for this book includes two groups of experienced professionals. One group is director level senior managers who would like to broaden the scope and effectiveness of their organization’s current ‘risk management’ process capability for projects, operations and corporate strategy contexts – what some refer to as enterprise risk management (ERM). The second group is those involved in implementing that capability in a projects context. Aspiring members of both these groups are also target readers. This is a very broad target audience, beyond the scope of all ‘project risk management’ books.

In part the wide target readership is driven by the wide scope of the ‘project’ concept which we believe needs to be addressed. In broad terms a corporate view of ‘projects’ includes projects of all types and sizes, from the small and simple to the large and complex, including programmes and portfolios of programmes, fully integrated with associated corporate operations and corporate strategy. This book uses ‘project’ in this broad sense, with a direct concern for the whole lifecycle of projects and the associated deliverable asset or organizational change, from conception to termination. In all cases links between projects, operations and corporate strategy are part of the corporate perspective, and enhancing corporate performance is the basic concern. This goes well beyond the scope of common project risk management practice – one component of ‘the bigger picture’ this book addresses.

In part the very wide target audience for this book is also driven by a belief that whether experienced or not, board members or aspiring project management team members, all managers need a clear understanding of what an effective and efficient uncertainty management process for clarifying opportunity and risk can achieve, and in broad terms how and where it can be used. This kind of ‘uncertainty management’ approach goes well beyond the scope of common practice ‘risk management’ in any context. All managers at all levels also need to understand why much common practice risk management is seriously limited in comparison, and why a change of approach is warranted.

In our view much common practice ‘risk management’ – often misleadingly treated as ‘best practice’ because it is common practice and seems compliant with guides and standards – is riddled with bad practice features, attempting inappropriate tasks using inadequate concepts and tools. Limitations include insufficient scope, inappropriate working assumptions, and limited objectives in terms of pursuing opportunities to improve performance. Typically project risk management is regarded as a process for ‘keeping things on track’ by identifying potentially adverse ‘risk events’ or threats to performance, and aspiring to neutralize them. Most current guides and standards acknowledge the potential for favourable events or opportunities, and addressing uncertainty is now firmly on the agenda of all the guides we are involved with. However, common practice project risk management does not provide a convincing basis for understanding all relevant aspects of uncertainty and exploring all feasible opportunities to enhance corporate performance. The underlying basis for this understanding goes well beyond project risk management and involves a number of ‘bigger picture’ concerns. Comprehensive treatment of uncertainty beyond the scope of guides and standards is essential to transform common practice.

In addition to planning and implementation processes, governance processes also should be informed by the understanding an uncertainty management approach can bring. Such governance goes well beyond simply looking for an approach that is compliant with guides or standards. Setting aside uncertainty management issues which really matter as ‘too difficult’, because they are not readily addressed by existing risk management processes, is unprofessional and unacceptable in our view. This is especially so in a governance context. Effective governance of investment decisions and projects is a very important further ‘bigger picture’ concern.

Risk needs to be seen in terms of downside implications of any sources of uncertainty when commitments are made. Shaping plans to achieve a minimum level of risk for any given level of expected performance for all relevant objectives at any given stage of the project lifecycle should be a core concern. Opportunity needs a broad interpretation that embraces all ways to improve performance, including creative and lateral thinking in formulating plans, exploitation of favourable circumstances, and seeking better tradeoffs between all objectives. This includes objectives which are not measurable. It also includes process considerations. In particular, it includes exploiting improvements in practice that make decisions easier to make and easier to defend whatever the eventual outcome.

Effective management of corporate performance in any context requires an appreciation of the sources of uncertainty that can have a significant effect on future performance at a level of decomposition which reflects their importance and corporate capability to do something about them. ‘Risk events’ in projects, that may or may not occur, need to be seen as just part of a broad view of uncertainty that also includes sources of ambiguity, inherent variability and systemic uncertainty. Recognised lack of certainty has to include ‘the unknowable’, but sometimes uncertainty is usefully viewed as ‘incomplete knowledge’ which can be reduced at a cost or by the unfolding of the project lifecycle. Determining how the lifecycle should unfold has to consider these relationships from a different angle. All sources of uncertainty require attention, at an appropriate level of decomposition for the lifecycle position and process objectives. ‘Risk events’ are often the least important uncertainties.

In this book, ‘best practice’ is given a systematic basis using three component ‘efficiency’ concepts: risk efficiency, clarity efficiency, and opportunity efficiency.

‘Risk efficiency’ is the lowest level of risk for any given level of expected performance. Risk efficiency can be demonstrated graphically for all measurable performance criteria. It should be sought for all non-measurable criteria that matter as well as for all measurable criteria that matter. Risk efficiency matters because less risk for more expected reward is an opportunity that matters.

‘Clarity efficiency’ is the lowest level of effort for any given level of insight about upside and downside aspects of uncertainty which can be communicated to relevant parties. Clarity efficiency matters because less effort for more reward matters. Clarity efficiency is a function of the concepts and processes used to shape plans and decisions.

‘Opportunity efficiency’ requires risk efficiency and clarity efficiency, plus appropriate tradeoffs between risk and expected outcomes for all objectives, plus appropriate tradeoffs between all objectives. Opportunity efficiency matters because better tradeoffs between risk and expected outcomes and better tradeoffs between all objectives matters.

A key feature of this book is using plain English and common colloquial interpretations of key words like ‘risk’, ‘opportunity’ and ‘uncertainty’. We shape perceptions about how these words are used by a limited number of explicit working assumptions, like our definitions of risk efficiency, clarity efficiency and opportunity efficiency. We explicitly go beyond the long legacy of conflicting and limiting technical definitions of terms like ‘risk’ which cripple current common practice.

An opportunity can still be seen in a colloquial sense as a situation where doing something desirable is easier than usual, and colloquial interpretations of other terms are still part of the language available. However, these three efficiency concepts collectively clarify why ‘best’ practice is very different from what many argue is ‘good’ practice, and why best practice involves a revolution relative to common practice.

All the central concepts and tools in this book have been used in successful practice since the 1970s, but they are more clearly explained in this book than in earlier publications by the authors, using simpler language and particularly simple but very effective recent applications, including a successful 2007 re-estimation exercise of a £20 billion portfolio of major road projects undertaken with the UK Highways Agency.

The way we choose to look at things matters. The concepts and words used to analyse situations and communicate our insights matter. They are part of the scope for opportunities that...