Saturday, July 24, 2010

The Risk Library

Seems like everybody has a book list of their favorites on risk and risk management.  Many project managers start with the "PMBOK Guide--4th Edition", Chapter 11.  However, there is also a PMI "Practice Standard for Project Risk Management", and there are industry specific "extensions" to the PMBOK Guide that tailor Chapter 11 to industry practices. 

Not available on the pmi.org site, but available free from DoD is the DoD Extension to the PMBOK Guide that has a Chapter 11 that in some respects differs from the PMBOK Guide and the companion practice standard.  For instance, in the DoD guide, qualitative and quantitative assessments are not handled separately: they are just considered different flavors of risk assessment. 

And, the DoD standard takes some effort to explain the hazards of multiplying risk probability times risk impact if the values are "uncalibrated". [Uncalibrated means guess or hunch or unsubstantiated estimate] The DoD's advice [as given in the PMI extension in Chapter 11], echoed elsewhere, is that if such values can not be properly calibrated so that the values have real project meaning, multiplication should not be used; it's better to form ranks of qualitative values.  If a numerical ranking is required, then apply a utility factor to transform the qualitative to a quantitative value.

I have just finished reading three books I would like to throw in the mix:

First, the well known "The Black Swan--2nd Edition" by Nassim Taleb.  The thesis of this book is that there are events that are so rare that conventional risk probability-impact assessments are not meaningful, but although rare, they can have dramatic impacts.  So the author spends most of the book discussing his observations and interpretations of how people react to very rare but important events.  For project managers, the insights to human behavior are where the value is.  [A book with a political variant on this same theme is Suskind's "One Percent Doctrine"]

Second, an interesting book for those doing product development: "How We Decide" by Jonah Lehrer.  This book is again qualitative; its main  focus is on decision making, especially decision making under the stress of time or information deserts, and the risks of those decisions.  I've always thought of decision making and risk management as unseperable.  The book covers what we know about how the brain works in decision making, and is very informative on not only the physiology of the brain but the interaction of physiology with thought processes.  There is a lot of discussion about how we get fooled by circumstances, a theme of Mike Clayton's blog back in Feburary.

And, third, "The Irrational Economist--Making Decisions in a Dangerous World", edited by E. Michel-Kerwin and P. Slovic.  This is five collections of essays, with each collection addressing a different theme.  Project managers will be especially interested in the first two collections because they address the concept of utility in many forms. The application to projects is fairly obvious because every project manager is faced with the difference between perception and reality [a utility concept] and the need to transform qualitative [high, medium, low] to something numeric [1, 2, 4], also a utility concept.

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