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Cognitive Uncertainty: A Barrier to Better Project Risk Management
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Transcript of Cognitive Uncertainty: A Barrier to Better Project Risk Management
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Cognitive Uncertainty:A Barrier to Better Project Risk Management
Douglas Hutcheon, MBAJohn Prpić, MBA
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• Understanding that Risk is a form of Uncertainty• Recognizing Cognitive Bias in your Team• Actionable Guidance for Better Project Risk Management
Learning Points
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Introduction• Who am I?• Who is John Prpić?
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The Current State Establishing the Context
• Organizational Structure• Reporting Lines• Departmental Autonomy
• Standards, Tools, and Terminologies• Dueling Academics/Methodologies/Practices/Recommendations
• Role Power• Profession or Process?
• Strategy• Missing, Misaligned, Marginalized
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Risk is a form of UncertaintyThe Risk Space / Know Your Enemy
• The Problem with Definitions• The Great Uncertainty• The Role of Ambiguity• The Affect of Cognitive Uncertainty
The Risk Equation
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The Problem with Definitions• Semantic Drift• Uncertainty according to…• Risk according to…
• Types of Risk
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• According to Knight, uncertainty is: a situation with only subjective or “unmeasured” probabilities [Qualitatively Analyzed]
• According to the OED uncertainty is: something that you cannot be sure about
Uncertainty according to…
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• According to Knight Risk is: “measurable Uncertainty” or objective probabilities. [Quantitatively Analyzed]
• According to the PMI Risk is: "an uncertain event or condition that, if it occurs, has a positive or negative effect on a project's objectives.”
• According to the OED Risk is: A situation involving exposure to danger.
Risk according to…
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Negative• Tangible impacts are easier to estimate/quantify• Intangible impacts are more difficult to estimate/quantify• Require Mitigation
Positive• Tangible impacts are easier to estimate/quantify• Intangible impacts are more difficult to estimate/quantify• Require Exploitation or Capture Planning
Types of Risk
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The Great Uncertainty
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Ambiguous Data 1• Affects the precision of your Risk Inputs • Effects the accuracy of your Risk Outputs/Product/Analysis
Organizational Ambiguity b• Generally considered a bad thing.• Can some ambiguity be a good thing?
Ambiguity as Constraint d• Can ambiguity be designed or planned to illicit better decision
making?
The Role of Ambiguity
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Individual• Differing mix of biases
Situational• Resource strength i.e. time/budget/people
Mission• Greater risk taking behavior to achieve established Schedule or Profit
targets• Reduced appetite for Risk after target met
Casualties• Higher value resources are not risked as often• Lower value resources are risked more often
Past Battles• Past successes make future successes seem more likely
The Affect of Cognitive Uncertainty 1
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Risk = Likelihood (L%) x Impact (I$) - [Expected]
Adjust for Ambiguity / Quality of Data
Risk = (L% Range) x (I$ Range) - [Probabilistic]
Adjust for observed Bias
Risk = (L% Range / Distribution Selection ) x (I$ Range / Distribution Selection) – [Calibrated?]
The Risk Equation
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Cognitive Bias in Your TeamWhy Things Are Seen
• Become a Trained Observer• Not just visual• Active listening
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My biased list of Biases• Heuristics• Planning Fallacy• Status Quo• Illusion of Control• Professional Viewpoint Effect
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Heuristics a.k.a. Rules of Thumb
The Textbook Definition: OED: A broadly accurate guide or principle, based on practice rather than theory.
What it sounds like: “Risk and Contingency is always about 6%”
What it means: We are okay with some inaccuracy (greater uncertainty)
What to do: Query for pedigree.
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The Planning FallacyThe Textbook Definition: The tendency to underestimate the duration of project activities. c
What it sounds like: “Build me a schedule that finishes three months early”
What it means: Sound scheduling practice will initially be compromised
What to do: Plan from the ground up.
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Status QuoThe Textbook Definition: The inclination of decision-makers to like things to stay relatively the same. c
What it sounds like: “This is the way we always do it”
What it means: Resistance to change.
What to do: Educate and Communicate.
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Illusion of ControlThe Textbook Definition: The tendency of decision-makers to believe they can control or influence outcomes over which they have no influence. c
What it sounds like: “We can always re-sequence or crash the schedule”
What it means: Often, the activity in question is lacking detail.
What to do: Conduct Risk-adjusted scenario analysis to see if re-sequencing and crashing could actually be done.
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Professional Viewpoint Effect
The Textbook Definition: The tendency to look at things according to the conventions of a decision-maker’s profession, forgetting any broader point of view. c
What it sounds like: “..but we are entitled to compensation…” / “..its the right thing to do…”
What it means: “You need a strong communication strategy”
What to do: Set expectations.Use a visual.
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Actionable GuidanceImmediate Actions (IAs) or the “How To”
• Add to your Agendas • Train throughout and at all levels• Add to your PMO’s portfolio• Improve Transparency with meaningful KPIs• Emphasize Accountability• Explore Incentivisation
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Papers1- Project Risk Management Incorporating Knight, Ellsberg & Kahneman. Prpić, J., (2016). Proceedings of the Hawaii International Conference on System Sciences #49. January 2016, Kauai, Hawaii, USA. IEEE Computer Society Press2 - The Affect of Organizational Structure on the Successful Delivery of Mega- scale Construction Projects. Hutcheon, D., (2014). MBA Applied Paper. Athabasca University
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Booksa - The Failure of Risk Management: Why its broken and how to fix it.Douglas W. Hubbard
b - Inside Megaprojects: Understanding Cultural Practices in Project Management. Alfons Van Marrewijk et al.
c - Project Decisions: The Art and Science. Lev Virine and Michael Trumper
d – A Beautiful Constraint: How To Transform Your Limitations into Advantages, and Why It’s Everyone’s Business. Adam Morgan and Mark Barden
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• Understanding that Risk is a form of Uncertainty• Recognizing Cognitive Bias in your Team• Actionable Guidance for Better Project Risk Management
Learning Points
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Cognitive Uncertainty:A Barrier to Better Project Risk Management
Douglas Hutcheon, MBAJohn Prpić, MBA