Project Risk and Opportunity Management

Authors: Agnar Johansen ; Nils OE Olsson ; George Jergeas ; Asbjorn Rolstadas .

One issue the authors are addressing seems to me to be the shortage of opportunity management in project management, while risk management is constantly evolving. They focus on a very large number of aspects of project management, which are always concisely discussed. Their starting points are that projects are to be successful, and what that means for the project, the parties that make up the project and what the contact points are with all other management points of attention. One conclusion is: the mindset must change.

According to the authors, a project is successful if this is the case in 3 areas, namely :

– Project objectives

– Business objectives

– Social objectives.

If we see the social objectives as achieved, we arrive at the following schematic overview:

Project goals achieved?
Yes No
Achieved your business goals? No Wasted investment Failed project
Yes Successful project Limited return on investment

 

Project challenges in the oil and gas industry are:

– The project costs that run up to 100%.

– The percentage of the engineering design that is complete before approval is given to commence expenditure ranges from 15% to 80%.

– The poor team performance due to a misalignment between management and the project team, and a lack of communication.

– A decreased competence of all project teams (owner, engineering , construction and manufacture): there are no “A” teams anymore.

In order to meet the project challenges from the start, the owners must take the time to define and plan the project. For example, they must:

– Appoint the right people to represent and advise them; they must be qualified, experienced and capable of working with others.

– Understand the internal and external risks and opportunities involved in the project, quantify them and make financial provisions.

– Clarify time schedule, cost and quality.

– Charging project costs over the entire life cycle of the project, not just initial costs of the construction.

– Ensure that the financial and other resources required for the project are available when needed.

– Ensure compliance with legal obligations and regulations.

– Monitor progress and performance with a focus on emerging opportunities and risks.

For all involved, the motivation behind the project is value creation. Important for creation of value is that the project (executing) organization brings business objectives into account, in addition to the project objectives, to understand the rationale for the project and that it works in the best interest of the owner. He, in turn, has to monitor the project closely and understand the interest of the business of the implementer (executive organization).

There are often conflicting interests between the owner and the implementing organization. Therefore, an agreement must be sought.

However, society also always has an interest in the project, for value creation from their point of view, e.g. through job creation.

These different points of view of value creation, i.e. different interests between these three parties, are the cause of each time a different view of opportunities and risks in the management process.

That brings unpredictability into view.

Unpredictability in projects is due to uncertainty . Uncertainty can be defined as any lack of information. Uncertainties lead to risks and opportunities in projects. So it is important to know the nature of the uncertainties. These are the ( un ) known ( un ) knowns .

Every uncertainty has one or more of the following causes:

– Nature

– Man

– Technology

The uncertainties of nature in projects have a low frequency but have a huge potential impact.

The uncertainties in projects caused by humans include the behavior of individuals, as well as the decisions made within and between organizational units. It stems from the behavior of the stakeholder (s) of the project. Project management may not be able to fully understand their rationale, motivation and business interests.

The uncertainties in projects that arise from technology concern the potential malfunctioning of equipment and systems. This can be based on design errors, damage incurred during transport or storage before it is deployed in the project, construction errors, poor testing, machine breakdown, … Usually these can be traced back to a human error.

Uncertainty management involves the change management that occurs throughout the project life cycle, to correct errors and unrealistic or unfeasible design , to comply with laws and regulations, to ensure occupational safety and to maximize the benefits of the project (by reducing risks and exploit opportunities).

Risks appear spread over time. Projects that seemed healthy at first can suddenly become unmanageable. Risks combine and interact to end up in chaos. Many risks are linked to the life cycle of the project. Risks with a link to legislation, e.g. can disappear quickly after approval for the project has been granted. Technical risks decrease as engineering follows. Some risks, especially the market-related ones, go further as they are independent of the life cycle. Global market risks are beyond the reach of virtually everyone involved. By removing risks in this way, you can create opportunities.

New opportunities can arise throughout the project life cycle. These can be internal conditions, such as: better competencies of employees, effective working methods, better or more resources available. It can also be external conditions, such as collaboration with other planned projects in the vicinity, so that the business generally saves time, but also for the user, such as installing sewerage during earthworks for road works … It can also save money by working together making purchases from a common supplier, or purchasing new products that make the work easier for several parties or guarantee better quality. This may require the project manager and owner to allow changes to the original project plan. However, there may be a risk that something will fail when an opportunity is exploited. In that case, active involvement, knowledge and authority are required of the management to allow the benefits of the opportunities to materialize.

Project management is also related to innovation management. Innovation is often used to mean something new, as a product, service, or output, and / or a new process, procedure or method. We add that innovation is also identifying and creating opportunities in projects. Also, identifying and creating opportunities, allowing them to materialize and reap their fruits can encourage innovative and creative thinking in organizations.

At the end the authors are talking about the changed mindset in the industry: Industry Best Practices : an adaptive and aggressive approach.

The adaptive approach is a flexible planning philosophy with a lot of authority delegation to the project team, which allows them to make qualitative and time saving decisions ‘on-the-spot’ without having to refer to a higher authority, and without fear of ‘blame & shame’. This agile planning is needed continuously throughout the project, starting with a moderate upfront effort, followed by continuous updates at a lower level, providing the opportunity to make quick decisions. This creates the opportunity for project managers to anticipate future problems, make an evasive maneuver for them, scan for future opportunities, and make the necessary changes for them.

Sometimes an offensive method is needed to push voluntary change, thereby adding value to the business value over the project life cycle. This approach is perhaps best demonstrated in disaster response / recovery projects. These situations represent the need for diversity in project delivery: the project manager makes the best on-the-spot decisions regarding work logic, procedures, schedules and changes. The project manager challenges the limits of the project and the limited authority of his team.

“Higher – Lower” and Covid-19

Author: Manu Steens

In this article I will tell you my own opinion. It is by no means the intention to present dealing with the pandemic as a simple matter. But there are some simple principles that strike me.

In the past, “higher-lower” was a game on television. Never before had I thought that these two words could be so important in assessing the need for action in a pandemic.

Currently, the federal government makes use of the services of specialists: virologists, biostatisticians , epidemiologists, etc. They can be used at any time to draw up difficult mathematical models to estimate the pandemic and to distil difficult indicators of the evolution from them.

How could it have been assumed with higher-lower at the beginning of September how it would evolve at the end of September and the weeks after ? (The next few months remain to be seen, but our experience with the first wave tells us that this wave is not over yet, and it is going to be difficult.)

Using three qualitative, easy to understand indicators as follows:

  1. What was the situation with the number of infections in Belgium at the beginning of September with regard to the number of infections at the very beginning of the first wave? Higher! Much higher ! And what about the number of super spreaders? Also much higher in September.
  2. What was the spread of the disease in the country with regard to the early onset of the first wave in early 2020? Also much higher.
  3. How did people behave in relieving the measures in terms of elation and carelessness? – higher ! And that is normal. If you doubt that, you should see a bunch of cows roaming about after a long winter, and then released into the pasture. People who have been a long time in lock-down have the same desire to be free again. And that behavior became part of the new normal. Goodbye caution. Goodbye discipline.

Is the result surprising, then, that there will be a more severe wave after September, which can whip higher than the first wave?

And that’s not even the question I want to talk about. What I want to talk about are lessons for the near future.

Is it inconceivable that there will be another wave after this? And what should we do about it?

We will not be able to do much about the first two indicators. As for the first, we are not even going to know if all the sick have been healed, and that no one is a carrier anymore. As for the second, mutatis mutandis: we cannot say much about the spread if we are not 100% sure who is still a carrier and who is not.

That is why it is important to do something with the third indicator. This is currently done by reducing the transmissibility of the virus as much as possible. In this way they try to prevent the spread in order not to overload the hospital system, if possible until there is a vaccine, and preferably forever.

But that requires discipline, both during the approach to reverse the new wave and the period afterwards to prevent another wave. So the discipline must be higher ! And that regardless of the precise measures in a ministerial order, or in the protocols, or in the local measures.

The search for exceptions, loopholes, back doors,… to do their thing must therefore be lower !

Effective Opportunity Management for Projects – Exploiting Positive Risk

Author: David Hilson

Released in 2004 , with references to texts from years earlier, but still blazingly topical, underused and under-studied : opportunity management as part of risk management. Benefits management for projects in this case …

The author advocates embedding opportunity management in existing risk management that focuses too much or only on threats. His argument for doing this is that they are two sides of the same coin called uncertainty. The fact that at present in a number of standards the uncertainty of the achievement of the goals may imply either a positive deviation or a negative deviation from their achievement, is underused and too little known in today’s companies.

Throughout reading, it is discovered that it can indeed be incorporated into a single management process, provided a number of minor extensions to existing threat management. This makes the book really to be not just regarded as a mere opportunity management process description: it is in fact a possible comprehensive risk management process description with some tips and tricks. This actually shows that the expansion of threat management with the management of opportunities entails virtually no additional work, but can potentially be very profitable in terms of ROI.

In order for it to succeed, the author sees four CSF (critical success factors) as follows:

  1. You need to know what you mean by the word “risk”.
  2. You have to know how to do it in practice.
  3. You need the right support: people, resources, methods.
  4. A person must know how he thinks and reacts in order to be able to adjust risk behavior.

One possible conclusion after reading is that it is always an advantage to engage in benefits management. People are often too focused on problems.

The fact that this work is written for projects does not detract from the fact that many ideas are valid in the management of processes.

Opportunity statements and identification and COVID-19

Author: Manu Steens

Anyone who takes himself seriously concerning risk management knows that the definition of risk according to ISO roughly amounts to a cause that gives rise to an uncertainty in the achievement of objectives. That uncertainty can have a de facto positive effect, so that the objectives are achieved and more, or have a negative effect, namely that the objectives are not achieved or worse.

A risk can then be written as a risk statement, which consists of a cause, the actual risk and the ultimate effect. This suffices as a one-to-one cause-to-effect statement to follow our reasoning, although real risk statements can give rise to many-to-one, one-to-many, or many-to-many statements.

Having a negative effect is due to threats, having a positive effect is due to opportunities.

Since a risk, despite the ISO definition, is linked by most people to threats rather than opportunities, we need to use metalanguage to focus.

Metalanguage in these are ‘templates’ in which risk statements, including opportunity statements, can be included.

This one is based on the principle of a risk statement:

  • “As a result of , may occur, which may lead to .”

And for opportunities based on SWOT, this becomes:

If we apply this to the European situation regarding Covid-19, we get, for example, statements like:

  • Through a policy culture that allows for a firm response, we can limit a new flare-up of the virus, which gives the development of a suitable virus vaccine more time and thus more chance of success.
  • If we can limit the number of human contacts at work, on public transport and in public spaces and to the extent of the realistically possible also in private life and at all kinds of events, we may be able to reduce the virus sufficiently, which gives a chance to the world of making work of economic recovery.
  • If the global expansion of human activities is intelligently restrained , allowing the pandemic risk in the future to diminish, biodiversity can stabilize, the natural balance can restore, fewer people come into contact with wild animals that are no longer dislodged from their habitat so that new pathogens are no longer transferred, transmission can decrease internationally, citizens in the future will be more forgiving and tolerant of a mistake in policy.
  • If clear communication is used, the right experts are heard, and transparency is created about the relationship between cause and effect, the most decisive policies can be discussed in open forums, providing insight into necessary and perhaps sufficient reforms to support a sustainable recovery.
  • With this premise, there may possibly be brought forward new and better institutions, with improved basic infrastructure, better regulation of key economic sectors and investment in public services that create and protect human capital and render in the long term, not in the short term, which can shape the economy and the world of the future. For example, by opting for a low-carbon basic infrastructure as a result of an open debate without group-think or tunnel vision , which enables growth for new developments, but which can also provide an answer to climate challenges.
  • By organizing flexible technology in Europe, and building strategic stocks of raw materials, it is possible to switch quickly between conventional production and the production of necessary goods in a pandemic time (e.g. personal protective equipment), thus reducing Europe’s dependence on Asia, and which also makes it possible to test such a system in collaboration with regular customers (eg hospitals, rest homes,…).

The Intelligence Trap – Revolutionise your thinking and make wiser decisions

Author: David Robson

Very important in making decisions is a psychological view of one’s own leadership. Namely a view that prevents you from falling for the “intelligence trap”. What exactly is that?

In fact, the intelligence trap is a direct result of some people’s inability to think outside of their expectations, to come up with an alternative view of the world where their decision is wrong rather than right. People with very high intelligence are more subjected to this than people with moderate intelligence. Nobel laureates sometimes suffer from this, so often that there is a term for it: “Nobel disease ”.

An active intervention to this pitfall can make use of so-called “ evidence- based wisdom ”. This can be imparted to all ages and to anyone, although one is more likely to benefit from it with moderate intelligence.

A first step is to understand what wisdom is. A definition of “wisdom” is: “he is wise who recognized the limits of his own knowledge” (Socrates) . Apart from that, good factual knowledge and training remain important.

Very dangerous is the fragility of the expert. For example, by relying heavily on schemes and protocols, which one must have, he may have trouble adapting to changes in the environment. Flexibility is therefore important. Personal bias is also a problem. One step towards a solution is to adapt the own thinking. This can already be done by reading about it, with inspiring examples. Placing a beginner with another, detailed, view is also an advantage because he or she does not yet know the patterns and therefore sees and can indicate differences in details of the case with regard to the general rule. It can also be done by taking a distant position. An example of this is the listing and quotation of important aspects of a situation or object, spread over several days. In addition, being able to listen to your own emotional compass is an advantage. This has to do with being able to relate the events in your environment and your (gut) feeling in the right way. After all, being able to spot deliberately crafted bullshit is a necessary skill. To this end, the author provides a list of some methods by which false truths are sometimes told.

What can save us from the pitfall are: cognitive reflection, intellectual humility, active “open- minded ” thinking, curiosity, refined emotional awareness and a “ growth mindset ”. We find these things in the nine virtues of the Intellectual Virtues Academy. These are divided into three categories as follows:

Getting started

Curiosity: the opportunity to be amazed and to investigate and ask the “why” question. A thirst for understanding and a desire to explore.

Intellectual humility: the willingness to recognize one’s own limits and mistakes, regardless of intellectual status or prestige.

Intellectual Autonomy: Having the ability for active autonomous and self-guided thinking. The ability to reason and think for oneself.

Executing well

Attention: to be there with your thoughts 100% on the matters of the learning process. Keep distractions at bay. Be with the thoughts and commitment completely on top of the topic.

Intellectual carefulness: the ability to notice and avoid intellectual pitfalls. A commitment to accuracy.

Intellectual thoroughness: the ability to seek and find explanations. Dissatisfaction with rather apparent or superficial and (too) simple explanations. Reaching for a deeper meaning and understanding.

Handling challenges

Open- mindedness : an capacity to think outside the box. Responds honestly to competing perspectives.

Intellectual Courage: Being ready to persevere in thinking or communicating with the risk of fear of being embarrassed or of failure.

Intellectual tenacity: a will to face an intellectual challenge and struggle. Keep your eyes on the prize and don’t give up.

These aspects of the eternal learning mindset apply to an individual, but how do you put together a ‘dream team’? It depends.

If you have a team where everyone has to do things clearly separately, without overlapping job content, then you can use a team of top players: there is no competition.

If you have to put together a team of competitors, where there is overlapping job content , then it is important that they are not all toppers, only about 60% are toppers, but then teamwork, being in tune with each other, weighs more.

With a crisis team, any type of crisis team, it’s the best of both worlds. In a CRT (Crisis Respons Team), for example the company fire service team, it is clearly the second. At a CET (Crisis Expert Team, where a team member might handle a file from A to Z , it might be the first. But with the CMT (Crisis Management Team), where there is little or no overlap between the participants, but there is still a need to work together because people must be able to rely on each other’s results, it is a pure cross: you need 100% toppers, but they also have to be able to work with each other. In the latter case, intellectual humility is an issue, because in this team one often has to deal with high profiles who “know very well what they are worth”. Antibodies against this are exercises in which people learn to share information and are assessed on the integration of each other’s point of view in their own thinking.

A change of mentality that can be useful to contribute positively to this is to initiate discussions throughout the hierarchy, between the different layers of the hierarchy, and to recognize and hear people as experts in the field of, for example, their own ideas about occupational safety.

Also not to be ignored is the use of statistics from near misses. After all, it has been statistically proven that a serious event is preceded by a number of near misses. That was the case with the Challenger , with the Columbia, (NASA) but actually also Covid-19 was preceded by, among others, SARS and MERS. There was a failure to learn lessons and to implement them into the future, or to persist in these lessons learned. For that you need the mentality of a “high reliability ” organization. It has been shown for this type of organization (research by Karl Weick & Kathleen Sutcliffe ) that they exhibit the following characteristics:

Expect to Fail: Employees go to work and every day can be a bad day. But the organization rewards employees for reporting their mistakes.

Reluctance to simplify interpretations: employees are rewarded for questioning assumptions, and for being skeptical of the wisdom of others.

Sensitivity to operations: Team members continue to communicate and interact to increase their understanding of the situation and look for the actual origin of each anomaly.

Commitment to resilience : acquiring the necessary knowledge and resources to bounce back after a negative event. This includes the ‘pre mortems ‘ and the discussions of near misses.

Respect for expertise: here the open communication between different layers of the hierarchy is important, and the intellectual humility of those at the top.