In risk management, culture and mindset are more important than processes and tools

Currently, there is an increasing number of requests from businesses to improve their risk management, as it no longer leads to the desired results. Based on the literature and standards such as the PMBOK® Guide, 6th Edition*, many organizations have adopted a very strict formalism or process and are asking project teams to follow it strictly. Unfortunately, in many cases, this leads to project teams following the process formally without much passion, but not grasping the real world of the project.

As a result, banal risks such as “too few resources” are often presented, which are soon shrugged off with “you can’t change anything anyway”. Or the management complains about risks that were not identified by the project team and which in practice lead to delays and additional costs. On the other hand, however, it is often enough precisely this management that does not take reported risks seriously and, above all, does not want to factor in too much effort for countermeasures.

After all, many organizations try to map and automate the risk management process with sophisticated quantitative methods in tools. However, this is not really helpful in view of an increasingly complex environment and dynamic project developments.

The success factors of risk management

Our recommendation is thus to focus less on processes and tools and more on people and collaboration. The project participants should (be allowed to) develop a clear understanding that projects are complex and dynamic and therefore entail risks (and opportunities). Strengthening a mindset that is helpful for the project goes hand in hand with the insight that on the way along the project life cycle, events occur that can be assessed with a certain probability of occurrence and an extent of damage based on previous experience. Much more important, however, is the insight that there are also unforeseeable, unplannable events that, like Covid-19, can have serious consequences for the project.

However, as a project manager I cannot find the latter in predefined risk lists. It is necessary to strengthen our human senses for weak signals, to anticipate possible developments in the project (negative as well as positive) and to include them in the decision-making. After all, project managers are not just recipients of orders. They are entrepreneurs (“CEO of the project”) who are ultimately responsible for the success or failure of the project. We also have to deal with so-called “cognitive biases”, personal distortions of perception which, for example, lead to the habit that obvious problems in the project are talked down (“optimism bias”). Approaches such as “Effectuation” show how to deal with difficult situations in a complex and dynamic project context.

Now to the culture. This also has a significant influence on how uncertainty is dealt with. There is, for example, the national or regional culture, which tends to be tolerant with risks or, on the contrary, has little tolerance for risks. This culture certainly also has an impact on the corporate culture, but it often depends on the type of activity of a company how tolerant a company is towards risks. For example, a zero-defect / risk culture prevails in manufacturing industries such as the automotive industry, whereas in innovative service providers, risks are primarily being perceived as learning opportunities.

If the tolerance for risks or deviations is low, then a huge effort is made to avoid risks. Usually with rigorous processes, quantitative methods and automated tools. And yet these companies are realising that disruptive developments in projects cannot be met with these tools. It is rather a matter of giving people and their abilities more space again, for an independent assessment of the opportunities and risks, in dialogue with all participants and in open communication about possible scenarios that the project faces. This also means a different role for executives. They should support the project teams in thinking up alternative scenarios, making independent decisions and understanding the project as their own undertaking for which it is worth taking responsibility.

Author: Reinhard Wagner, CEO of Tiba Managementberatung

*PMBOK, PMP, Project Management Professional (PMP) are registered marks of the Project Management Institute, Inc.

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