Page 206 - Global Project Management Handbook

MANAGING RISKS AND UNCERTAINTY IN MAJOR PROJECTS 9-11

complex systems are more likely to “unravel.” Relatively small disturbances can provoke
chain reactions that can cause substantial damage and even cause the system to collapse.
Because unraveling is the result of complex interactions that are difficult to apprehend or
predict, the appearance of symptoms of unraveling are perceived as emergent events.
Complex systems in general and relational venturing projects in particular therefore are
considerably more exposed to emergent risk. Their management must introduce mecha-
nisms for dealing with emergent risk.

MANAGEMENT OF ANTICIPATED RISKS

Risk management is an integral part of project management; witness the risk management
knowledge area in recent versions of the Project Management Institute’s (PMI’s) Project
Management Body of Knowledge (PMI, 2004). Risk management as it exists in the field
of project management involves identifying future probable events, analyzing the events
to determine their probability of occurrence and potential impact on the project, and elab-
orating strategies for managing the risks. Good management of projects, therefore,
requires good risk management. The best sponsors show an ability to manage risks more
effectively, which, in turn, contributes to making projects more successful.
Anticipated risks are amenable to analysis, both qualitative and quantitative. The dis-
ciplines of management science and scenario building form the backbone (Miller and
Lessard, 2000). The keys to effective risk management are the identification of risks,
their analysis, and the elaboration of effective strategies for managing them. Rigor and
discipline also are necessary to act on this information. Effective risk management relies
on the identification of risks particularly in the early phases before the project concept
has been elaborated. In the early phases, it is more important to identify all the potential
types and sources of risk than to actually identify individual risk events.
Competent sponsors are very good at identifying the issues that will need to be
resolved, and putting in place mechanisms to resolve them. Effective sponsor organiza-
tions rely a great deal on their own experience for this, but they also know who to involve
in the risk management process. A wider variety of points of view is likely to be better at
identifying more areas that should be of concern and will have more information and
competency to draw on in all the steps of the risk management process. Having a rich

coalition of project participants and a large network external to the project that the spon-
sor can draw on in the search for information and solutions are keys to effective identifi-
cation and management of risks.
As a project gets closer to the point were commitments will be made, sponsors often
organize risk management workshops where risks, risk management strategies, and the
allocation of risks are reviewed for completeness and acceptability prior to commitment.
Many points of view are brought to these workshops.
Effective management of risks requires the courage to withhold commitment until
risks have been dealt with adequately. In the enthusiasm and drive to move projects for-
ward, some sponsors and other participants tend to neglect downside risks, that is, risks
with low probabilities but large impacts. People with a background in finance tend to be
very sensitive to these types of risk and often will withhold their approval and commit-
ment until they are dealt with. The presence of people with this type of background and
this attitude is often associated with project success. It is the sponsor’s role to identify the
need for such scrutiny and to engage the right people.
In general, successful projects undergo more scrutiny than less successful projects.
They are scrutinized from more points of view, in more detail, and more rigorously than
less successful projects. Scrutiny is applied throughout the project development process