PASE PLC

PASE Plc



PASE Plc

PART A

Uncertainty which matters is central to all projects. It is not just a question of how long a project will take, or how much it will cost. Uncertainty which matters includes which parties ought to be involved, the alignment of their motives, the alignment of project objectives with corporate strategic objectives, shaping the design and resource requirements, choosing and managing appropriate processes, managing the underlying trade-offs between all relevant attributes measuring performance, and the implications of associated risk.

It might be argued that formal project risk management processes are not appropriate for all projects, but making a choice not to apply formal processes requires a clear understanding of what best practice formal project risk management processes could deliver, and what this should cost, including associated uncertainty and risk. Everyone involved in making such choices needs to understand the implications. Moreover, even if formal approaches are not appropriate for some projects, informal approaches ought to reflect an understanding of the principles underlying formal processes. Everyone involved in projects ought to understand these principles, because they are the basis of simple rules of thumb that work in practice.

Best practice in project risk management is concerned with managing uncertainty that matters in an effective and efficient manner. To do so we need to understand where uncertainty matters, why it matters, what could be done about it, what should be done about it, and who should take managerial and financial responsibility for it. Best practice in project risk management also involves the elimination of dysfunctional 'corporate culture conditions', like 'a blame culture' which fosters inappropriate blame because managers are unable to distinguish between good luck and good management, bad luck and bad management. In the authors' view best practice in this sense cannot be achieved without a clear understanding of the concept of 'risk efficiency', and its vigorous pursuit using a simple operational tool, cumulative probability distributions (S-curves) which compare alternative decision choices. This paper explains why the authors hold this view, and why this implies a general need for the project management community to understand risk efficiency.

A basic definition of 'risk efficiency' is simply 'the minimum risk decision choice for a given level of expected performance', 'expected performance' being a best estimate of what should happen on average, 'risk' being 'the possibility of adverse departures from expectations'.

What this means and how it affects project management processes is more complex, the focus of this paper as a whole.

Common practice in project risk management involves a limited agenda relative to best practice. Common practice is largely focused on what we will call 'risk events', rather than the accumulated effect of all the risk events and all other sources of uncertainty which are relevant to decision choices. A 'risk event' in this sense is 'risk' as defined on page 127 of the 2000 edition of the PMBOK by the PMI ,

'an uncertain event or condition that, if it occurs, has a positive or negative effect on a project objective',

with a directly comparable definition ...