MANAGING RISKS: THE PROJECT “TOOLBOX” APPROACH

RESEARCH MANAGING RISKS: THE PROJECT “TOOLBOX” APPROACH THE HUMAN MIND IS FUNDAMENTALLY AN ADAPTIVE TOOLBOX – LEARNING, ADAPTING, AND EVOLVING TO ITS ENVIRONMENT.

Dr Duro Kolar, academic of Project Management, School of Business, Leadership and Executive Education Group at Monash University places the lens over the subject of managing risk in the current climate, and how you can develop a project “toolbox” which combines computational information and your own expertise and knowledge.

Consider this scenario: Your client or executive director asks you to provide a comprehensive approach to manage risks on a large infrastructure or defence project. You start drafting the risk management plan, and then you suddenly stop. You realise that such projects are prone to cost overruns, delays, and failed procurement from an article you read on the weekend. However, in your view, most of these risks are foreseeable and avoidable. You’ve run the algorithms on your state-of-the-art technology platform. They’re saying with confidence that such risks are insignificant. Basically, they’ve been addressed. Yet, intuitively, you hesitate in making a choice. It’s like a trade-off: ignore the computationally derived information and proceed based on a gut feel, or not. What do you do? This is a common scenario in today’s project world. Project managers continually face the challenge of managing risks in a technologically advanced society. However, what are we truly managing? Is it the risk or ourselves? Or are we living an illusion?

Although such questions permeate academic studies, dividing researchers in their wake, we stand together on one point: we either see risk as objective or subjective, which determines our ability to manage it, or not. If we take the former dominant view, risks can be managed based on some objective facts about the material world (i.e., the roulette table or known future). With the latter controversial view, risks cannot be managed as it materialises in institutional behaviour and social relations (i.e. the business world or unknown future).

In a world of uncertainty, such as COVID-19, cyber security, and geopolitics, do we ignore the facts and trust oneself?

This leads to an investigation into behaviour and implicitly indicating intuition to achieve the right outcome without focusing on information when we respond to risk. Particularity, in times of uncertainty.

HOW DO WE RESPOND TO RISK IF WE CANNOT SEE IT?

That being the case, does risk truly exist? Risk is considered from a probabilistic dimension, a quantitative analysis of reality. However, humans do not analyse risk in a pure probabilistic way. We tend to see risk differently.

In other words, risk is a subjective construction of reality, a psychological or political reaction to experiences. Take for example someone trying to reduce the chances of another economic crisis, cyber-attack or political play for power, these factors are unknown phenomena, hard to predict, paralysing at times, where calculations cannot only lead to illusory outcomes but a fundamental loss in the confidence of algorithms.

In such times of uncertainty, simple rules prevail not statistical reasoning. Heuristics become an indispensable tool. A way to tackle risks head-on in the real-world.

Heuristics are mental shortcuts, simple rules of thumb that solve complex and uncertain situations. More simply, it is a strategy that ignores information. Humans have survived through time on making such simple intuitive or gut feel decisions.

(Source: iStock)

Empirical evidence from longitudinal studies also confirms this assertion. Taken further, research shows that heuristics often outperform statistical models. For example, sophisticated algorithm models performed badly during the recent global financial crisis and in the current COVID-19 environment. And more alarming, showing embarrassing vulnerabilities in defence, high stakes combat missions incorporating the most advanced technology. Fundamentally, heuristics win. However, this case is not closed.

WHICH HEURISTIC DOES A PROJECT MANAGER CHOOSE?

Although there is no universally best heuristic that can be applied in managing risk, research shows that the ‘take-thebest’ heuristic prevails, as it enables humans to learn from cues and signals in their environment. And consequently, giving humans the confidence to choose the right course of action. Even with noise and cognitive biases.

The human mind is fundamentally an adaptive toolbox – learning, adapting, and evolving to its environment. These survival capacities are usually acquired through personal experiences, training and evolutionary learning which shapes our behaviour. Heuristics and their building blocks exploit these capacities, enabling us to make faster and better decisions. So, a core question remains:

HOW SHOULD PROJECT MANAGERS MANAGE RISK?

Especially, considering the rapid and at times scary evolution of artificial intelligence and machine learning. Those neural networks and decision tree algorithms are winning, right?

Well, not necessarily. First and foremost, technology is a tool, an extension of the human organism, working with us to navigate the complexities and uncertainties of the world.

And in such a world, technological models are showing their weaknesses, forcing humans to step in. Some scholars even labelling such a phenomenon as “fauxtomation,” a marketing ploy by technopoles e.g., Silicon Valley in the US or the IT cluster Rhine-Main-Neckar in Germany, to make pointless products seem cutting-edge. Secondly, when making judgments and decisions, less effort tends to lead to greater accuracy – the effort-accuracy trade-off. And even if technology was more accurate than humans, we still must decide what to do with the generated information.

Managing risk therefore entails taking an adaptive mindset to the world. Educating and training the project mind i.e., the building blocks of heuristics, through experiences.

This is on par with similar professions, such as medical professionals, judges, and executives, which are guided by evolved capacities and experiences rather than structured rules. So, when it comes to managing risk, work with the computational information whilst expanding your project ‘toolbox,’ and trust yourself!

Author: Dr Duro Kolar is an academic of Project Management at the Leadership and Executive Education Group at Monash University. His research interests include strategic decisionmaking, large-scale projects, innovation and geopolitics. Duro has received nominations for several research excellence awards including university, vice-chancellor and the best PhD in the world on management decisions. He continues to work on cutting-edge, project strategy and decision research shaping the project world. Prior to his academic appointment, Duro worked for government and private institutions on the strategic implementation of large-scale infrastructure projects and taskforces transforming the built environment space for the better.