Thoughts on Risk - Revelation
November 29, 2007
Lee A. Peters

People came up to me in Atlanta after my presentation on Risk to say they got immediately applicable practical ideas. Packaging ideas for a 65 minute verbal presentation is quite different than talking to a computer screen while writing an article. Consider preparing and presenting a topic to the local chapter or to PMI Congress to help your own understanding of a topic or to improve your own management skills. For example, after writing three articles and a paper, preparing the talk caused new thoughts and concepts expanding my understanding of Risk to appear as gift wrapped revelation. Let me share those revelations - some have been mentioned in the previous three articles - others are fresh.

1.  Risk comes in two forms: Uncertainty and Variation. Previously I had considered Risk only to be variation with some activities having wide variation. There are things you know will vary and have some idea as to the possible variation while others are not completely thought out or are completely unknown.

2.  Look at this math - 5% of your activities will have 50% of the Risk, 15% will have 30% of Risk (total of 80% of the Risk in 20% of the activities), and 80% will have 20% of the Risk. More than half of the deviation is found in 5% of the activities. A good doctorate thesis could validate this premise.

3. Project managers make uncertain events certain. Root out Uncertainty! You are to clearly identify the 20% of activities with Uncertainty, then drive them to certainty. The worst case contingency is 45% of the project's original estimate. My guess is this is more real than we are willing to admit.

4. What saves us is that variation can be both positive and negative contrasted with the all worst case above; however, we tend to be optimistic which means the total variation is plus 20% and minus 10%. We are also unwilling to admit how large an impact activities with little value but great Uncertainty can have. (Yes, ducks can nibble you to death!) On two multi-million construction projects my contingency was half (10%) what it should have been. This is with Scope being well defined. Projects with much greater human components (large labor components), contingencies must be in the range of 40% because productivity has such great variation - day to day and within a day.

5. Contingencies are for unknown, unknowns. When you are able to identify Risk and its impact, you are reducing the Uncertainty. You know what can happen in known activities and are predicting what the variation can be. Known variation can be predicted, it is unknown variation that causes large deviations. The irony is humans can not accept the possible deviation with known variation much less any deviation from unknown variation.

6. Know variation can be predicted using reasonable pessimistic (worst case), reasonable optimistic (best case), and reasonable (or expected) case as used in PERT. The worst and best are about one standard deviation, perhaps but not likely two from the mean (which is not the expected). One standard deviation contains 67% of variation while two has 90%. We really do not know what the variation is in these three estimated cases. The distribution is easily bi-modal and skewed - nothing like normal. Another possible doctoral thesis. All activities would benefit from this scrutiny. Here is a warning to those using one of the range scheduling programs based on Monte Carlo simulation. The worst and best cases appear to be based on three standard deviations or 99% -- only one percent chance of the actual falling outside the range. I doubt if we can be sufficiently aggressive or candid in our estimating to truly establish a three standard deviation worst or best case. I can believe one standard deviation but not three. This simulation is further distorted by allowing normal to be one of the possible distributions.

7. Look for Uncertainty in Results first, Scope second, then in Performance third. Uncertainty cascades and amplifies - Uncertainty in Results moves into Scope then into Performance.

8. Most of my project problems come from not doing things I know how to do rather than doing new things I do not know how to do. Most issues are at your feet waiting to be addressed. We ignore them because they are familiar. Doctors will pick up common presentations of uncommon diseases but not uncommon presentations of common diseases.

9. You find both Opportunity and Threat When you find Uncertainty. I had thought they were different beasts but now believe they are opposite sides of the same coin. So if you find a Threat, search for the Opportunity lurking in it. This makes the search for Risk a one pass process. Let me say that again - threats and opportunities are not different; they are both within the same Uncertainty.

10. Risk never goes alway - it changes form as you nail down Uncertainty, as you define the worst case and best case for each activity, Uncertainty moves down stream in the project. The search for Risk never ends. Continue to search! Search Results, Scope, and Performance concurrently - chase an activity from Result though Scope to completion. Hopefully, by fixing the root cause in Result or Scope, the Uncertainty will not manifest itself in Performance.

11. Uncertainty in Results comes in two dynamics and either can cause the project to fail.

• Product
• People (customer).

12. Consider for a moment whether there is an endemic project manager failure to properly identify the Scope of the project?? Scope is the work in the project required to produce the Result. I suspect much Scope is glossed over - it may be identified but the effort to actually complete the work is ignored.

13. There are six dynamics causing Uncertainty in Scope:

• Incomplete Scope
• Poorly Defined Known Scope
• Inability to Plan Work Elements (packages).
• Cannot Execute Work Elements
• Cannot Control Changes in Scope
• Cannot Control normal evolution in Scope - Scope evolves with the project.

14. Look for Uncertainty in Performance by looking at Quality (to produce the Result), Deliverables (required to produce the Result), Labor Plan (effort to do the work), Duration (just how long does it take to do the work), and Cost

15. What is the impact of Uncertainty in each Scope dynamic on the others?

• Does an increase in duration increase cost?
• Decrease in duration reduce cost?
• Decrease in quality reduce duration?
• Decrease in quality change cost
• How do they change as a function of each other and as a function of Scope

16. Uncertainty is more complex in Performance. All impact Performance.

• Teams
• Methods
• Resources
• Controls

17. Project Proverb on Performance Planning: No battle plan ever survives contact with the enemy. - Field Marshall Helmuth Carl Bernard von Moltke

18. Uncertainty in Resources abounds:

• Timeliness is crucial - being at the right place at the right time is an incredible challenge and miracles do not happen.
• Quality - poor resources impact product quality and productivity. 
• Value - cost or price variation can force fewer resources, poorer quality, and sometimes lower productivity.
• Quantity - too few or too many will impact productivity and product quality.
• Productivity - poorly supervised, poorly planned work can reduce productivity of resources. Waste reduces productivity of materials, tools, and equipment.

19. Uncertainty in Performance. As you Plan Performance, Start-up, Closure, and Velocity:

• Look for Systemic Issues - the same issues for the same resource that occur frequently across other tasks
• Look for Unique Issues - One of a kind only impacting one task (when one thing goes wrong in a task, other things in that task also go wrong)
• What is the plan to start the project? The first 5% is absolutely crucial to establish expectations, create momentum, fix quality standards.
  • Start-up makes or breaks a project!
  • The time with greatest Risk is start-up
• How will the project be finished?
  • What is the closure plan?
  • Remember implementation
• What velocity of progress is required?
  • How will the project be accelerated to this velocity?
  • How will this velocity be maintained?

20. Vigilance during Execution (when you thought it was safe, it was just beginning). Throughout execution search for activities: 

• Not at speed
• Not right thing
• Not smooth
• Not right way (method)
• Not at right time
  

As you ponder Risk, Uncertainty, variation, probability, impact on your next project, consider these twenty thoughts precipitated by searching for Risk.