"How to Avoid the Traps of
Cultural Thinking"
Mr. Darryl Updegrove, MBA, PMP
July 25, 2013
What is Risk?
 Risk is an uncertain event or condition that, if it
occurs, has an effect on at least one project objective.
 Objectives can include scope, schedule, cost, and
quality.
 A risk may have one or more causes and, if it occurs, it
may have one or more impacts.
 Positive risks (events that have a valued impact) are
often called opportunities.
2
How Do I Manage It?
 Known risks are those that have been identified and
analyzed, making it possible to plan responses for
those risks.
 Specified unknown risks cannot be managed
proactively, which suggests that the project team
should create a contingency plan.
 The PMBOK guide has two approaches to Risk
Management:
 Quantify Risk
 Qualify Risk
3
Risk Approach – Quantify Risk
 Determine Cost Impact or Cost Opportunity:
 Risk:



How much will I lose if the risk occurs and what is the
probability?
What does it cost me to avoid that risk?
Is it worth the cost to avoid the risk?
 Risk Opportunity:
 How much will I gain if the opportunity occurs and what is
the probability?
 What does it cost me to take that opportunity?
 Is there a net Return On Investment (ROI)?
4
Risk Approach – Qualify Risk
 Qualify Risk:
 Identify likelihood (probability) and consequence (impact)
 Determine risk level (low / medium / high)
 Determine risk handling approach (accept, avoid, transfer,
mitigate)
 Determine mitigation approach, if necessary
 Track risk handling strategy
 Track risk status
5
Risk Matrix
• Typically, we assign linear likelihoods
and look for ways to influence
likelihood and/or consequence.
• The risk matrix is used to assign a risk
level of low (green), medium (yellow),
or high (red).
• Other methods are used, and levels of
likelihood and consequence can be
more or less than 5. It is rare to see
lower than 3 levels.
Often the approach to risk level are as follows:
•Low:
Monitor risk level for change
•Medium:
Develop a handling strategy, but do not implement. Monitor risk
level for change.
•High:
Implement the handling strategy
6
Using the Risk Matrix
Consequence
2
3
4
5
5
Likelihood
Typically, we assign linear likelihoods:
1. 0-20% - Highly Unlikely
2. 20-40% - Unlikely
3. 40-60% - Likely
4. 60-80% - Probable
5. 80-100% - Highly Probable
1
4
X
3
2
1
Consequence levels can be related to type of risk:
• Cost:
$ thresholds
• Schedule:
Time delays (days, weeks, months, milestones)
• Performance:
Loss of capability
• Quality:
Reliability, availability, % returns, warranty impacts
• Others:
Impacts can be relative (minor, significant, major) 7
Risk Matrix Issues
Consequence
1
2
3
4
5
5
Likelihood
• Linear probabilities may not be
appropriate
• Logic tells us that extremely high/low
consequences should be evaluated very
carefully.
• The same can apply to extremely
high/low likelihoods
4
3
2
1
X
Question: What action would you take if you had a 20% chance
or less likelihood of a risk with severe consequences occurring?
Remember, by playing Russian roulette you have a 17% chance
of fatally shooting yourself on just the first shot
8
Opportunity versus Risk
 Do we evaluate the possible value of an opportunity, without
first considering the consequence of failure?
OPPORTUNITY
RISK
Value
1
2
3
Consequence
4
5
1
4
3
2
1
3
4
5
5
Likelihood
Possibility
5
2
4
3
2
1
9
Cultural Influence on Risk
Our perspectives in life influence how we approach risk mitigation and risk
handling.
• Risk takers may be inclined to accept the potential consequences of risk
without full consideration of the impacts
• Risk avoiders may rarely take chances, and miss beneficial opportunities
Media can influence our approach to risk
Stories, legends, news all influence our perspective on risk management
10
Risk Strategy Mistakes
 “It’s not a risk, it’s just a concern” – Avoiding acknowledging
risk
 “The risk isn’t really that high” – Minimizing risk

We often assume the highly unlikely cannot happen (i.e. L = 0) , and
the unlikely is highly unlikely (L2 = L1)
 Solving risks without documenting the approach
 Various reasons: laziness, unwillingness to notify stakeholders, too
busy, untrained in the process
 Although solving the risk seems like a good idea, without thinking
through the process, the most expedient approach is often taken
 Without documenting the risk, getting funding for risk mitigation
strategies is difficult, and there is no oversight/reporting usually
until the risk is virtually realized
11
Risk Strategy Mistakes (continued)
 Not re-evaluating risk regularly


Low risks can become higher risks over time
Mitigation strategies are not followed or are not as successful
as predicted
 Evaluating opportunity over risk


Winner-takes-all approaches lead to evaluating the
possibilities of opportunities and ignoring the possibilities of
failure
Modern cultural perspectives are very anti-risk handling:
 “Just Do It”
 “Go Big or Go Home”
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Risk Consequence Analysis
 Analyze all the possibilities before deciding on your
strategy:
Choices
Results
Risk occurs
Risk does not occur
Be risk averse
You were prepared
and may have
saved the day
False alarm:
get labeled a
“Chicken Little”
Be a risk taker
Spend the rest of your
life knowing you made
the wrong choice
You got lucky
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If You Don’t Take Risks, You’ll Never
Be a Success
 There are multiple stories of those who gambled and
won big:
 Paul Orfalea - Kinko’s
 Donald Trump
 Howard Schultz – Starbuck’s
 Bill Gates – Microsoft Corporation
 Steve Jobs – Apple Computers
 John Lasseter - Pixar
Rarely do we remember those who gambled big and lost!
14
Disastrous Product Launches












Coors Rocky Mountain Spring Water – 2 years
HD DVD – 2 years
Cosmopolitan Yogurt – 18 months
Pepsi AM – 1 year
Pepsi Crystal – 1 year
McDonald’s Arch Deluxe – 1 year
Microsoft Bob – 1 year
Orbitz Soda – 1 year
Google Lively – 4 months
New Coke – 77 days
HP Touchpad – 49 days
Qwikster – 23 days
15
It’s Never Happened Before
 Every instance where risk is
previously avoided builds a
belief that it can’t ever happen
 Various examples can be given,
but probably the most famous
is the Challenger Space Shuttle
explosion
 Because the solid rocket booster O-
ring had never fully burned
through before, NASA assumed
that the O-rings were safe
 The shuttle was launched at its
coldest temperature ever, with
NASA ignoring warnings that
proved fatal for all seven
passengers
16
It’s Not a Risk if it Can’t Be Quantified
 Following the Challenger disaster, NASA
followed up with the Columbia disaster
 A damage assessment team saw the foam
block strike the Columbia during launch
 Pleas to request assistance from other
organizations in damage assessment were
denied because the risk that there was
damage which could endanger the shuttle
could not be verified (the very reason the
request was made)
 As a result of ignoring the risk, seven more
lives were lost
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Go Big or Go Home
 “Casey at the Bat” is a ballad about a
baseball team from the town of
Mudville that is losing by two runs with
two outs in their last inning.
 With two runners now in scoring
position, Casey represented the
potential winning run.
 Casey is so sure of his abilities that he
does not swing at the first two pitches,
both strikes.
 On the last pitch, the overconfident
Casey strikes out, ending the game and
sending the crowd home unhappy.
And now the leather-covered sphere came hurtling through the air,
And Casey stood a-watching it in haughty grandeur there.
Close by the sturdy batsman the ball unheeded sped—
"That ain't my style," said Casey. "Strike one!" the umpire said.
…
With a smile of Christian charity great Casey's visage shone;
He stilled the rising tumult; he bade the game go on;
He signaled to the pitcher, and once more the dun sphere flew;
But Casey still ignored it and the umpire said, "Strike two!"
"Fraud!" cried the maddened thousands, and echo answered "Fraud!"
But one scornful look from Casey and the audience was awed.
They saw his face grow stern and cold, they saw his muscles strain, And they
knew that Casey wouldn't let that ball go by again.
The sneer is gone from Casey's lip, his teeth are clenched in hate,
He pounds with cruel violence his bat upon the plate;
And now the pitcher holds the ball, and now he lets it go,
And now the air is shattered by the force of Casey's blow.
Oh, somewhere in this favoured land the sun is shining bright,
The band is playing somewhere, and somewhere hearts are light;
And somewhere men are laughing, and somewhere children shout,
But there is no joy in Mudville—mighty Casey has struck out.
Although fictional in nature, the moral of the story is to
avoid unnecessary risk in project planning
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Just Do It !
 "The Ballad of Casey Jones" is a
traditional song about railroad engineer
Casey Jones and his death at the controls
of the train he was driving. It tells of how
Jones and his fireman Sim Webb raced
their locomotive to make up for lost time,
but discovered another train ahead of
them on the line, and how Jones remained
on board to try to stop the train as Webb
jumped to safety.
 On April 30, 1900, Casey Jones was killed
when his passenger train, the Cannonball
Express, collided with a stalled freight
train at on a foggy and rainy night.
 According to legend, when they found his
body, his hands were still on the whistle
and brake.
•Jones was issued nine citations for rules infractions in
his career, with a total of 145 days suspended. However,
in the year prior to his death Jones had not been cited
for any rules infractions. Railroaders who worked with
Jones liked him but admitted that he was a bit of a
chance taker. He was by all accounts an ambitious
engineer, eager to move up the seniority ranks and
serve on the better-paying, more prestigious passenger
trains.
•The night of his death, Casey Jones was “high-balling”
his train, hitting speeds as high as 115 mph. The
opportunity of meeting schedule and the ensuing fame
over-rode the risk of death and destruction that
actually ensued.
Casey Jones is remembered for his
bravery, not his risk-taking mentality
that ultimately claimed his life.
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Superman - I Can Do Anything
 The belief in one’s own or team’s ability to
accomplish above-average performance on
a regular basis
Consequence
 Misrepresentation of actual capability leads
to a decrease in assigned likelihood of failure
which is a near-automatic risk reduction
the belief in this capability for future events
 Ensure one is aware of the difference
between surge capability and continued
capability
2
3
4 5
5
Likelihood
 Success / past history can further influence
1
4
X
X
3
2
1
20
Misunderstanding of Probability
 Not understanding the laws of
probability leads to
overconfidence in the unlikely
possibility of risk occurrence
 An easy example to understand is
the likelihood of flipping a coin
and it landing head side up at least
once

Flips
Chance of the Coin Landing
Head Side Up at Least Once
1
50%
2
75%
3
88%
4
94%
5
97%
6
98%
Each chance is 50%, but over just a
few flips it becomes close to certain it
will occur (at least once).
21
Venetian Blind Syndrome
 In calculating quantitative opportunity/Return on
Investment (ROI), it is easy to show future returns,
with little or no near-term return.
 The overall ROI or opportunity is high, but there is little
to justify the future expectations of value
 As the effort is re-evaluated on a regular basis,
forecasts are updated
 Repeated evaluation of future ROI with no evaluation of
actual versus planned performance can lead to the
“Venetian Blind” syndrome
22
Venetian Blind Syndrome (cont.)
 The initial analysis shows future large returns
500
400
300
200
Series1
100
0
0
2
4
6
8
10
12
-100
-200
23
Venetian Blind Syndrome (cont.)
 When the project is re-evaluated and found to be
lacking, future growth is shifted to the right, showing
value in continuing the project
500
400
300
Series1
200
Series2
100
Series3
0
0
2
4
6
8
10
12
-100
-200
24
Venetian Blind Syndrome (cont.)
 This continues cycle after cycle
500
400
Series1
300
Series2
Series3
200
Series4
100
Series5
Series6
0
Series7
0
2
4
6
8
10
12
-100
-200
25
Venetian Blind Syndrome (cont.)
 Actual performance, when evaluated, might show the
project is not worth the time/effort
500
400
300
200
Series1
100
0
0
2
4
6
8
10
12
-100
-200
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What Do We Do?
 Determine if we can live with the negative result of
risk
 Would you risk striking out in an embarrassing way
 Would you risk crashing a train and dying
 Would you risk killing a space shuttle crew
 Notify stakeholders early
 Follow PMBOK principles regarding risk notification
 Plan risk, execute risk mitigations, monitor and
control impacts
27
Questions & Discussion
Thank You !