This document discusses risk management and provides guidance on implementing an effective risk management process. It addresses common challenges like complexity, bias, and skepticism. The key messages are: 1) Risk management is a simple process that involves identifying, assessing, planning for, and managing risks. When applied with common sense, it should be part of routine project management. 2) An effective risk management process provides benefits like informed decision making, understanding risk exposure, and early warning of problems. 3) Risk management is a positive activity aimed at supporting stakeholders, not an ineffective overhead. It deserves consideration on all but the simplest projects.

1. Gain the Advantage
Measure the Risk
© Risk Advantage Limited 1
“Risk in a Complex World”
Peter Campbell
FAPM MIRM MBCS MIET
Society for Risk Analysis
Director: Risk Advantage Limited
Chairman: APM Risk SIG

2. Gain the Advantage
Measure the Risk
Complex Risk Management
Reputation
Corporate
Technical
Political
Stakeholders
Supply Chain
Licensing
Operational
Regulation
People
Legislation
Business
Health & Safety
Business Continuity
Socio-Economic
Legal
Logistics
Geo-Political
Delivery
Environmental Funding
Investment
Risk Owner
Risk Fund
Impacts
Confidence
Level
Controls
Probability
Quantitative
Analysis
Sensitivity
Management
Reserve
‘S’ Curve
Issues
© Risk Advantage Limited 2
Hindsight
Bias
Anchoring

3. Gain the Advantage
Measure the Risk
© Risk Advantage Limited 3
Why Manage Risk?
I’m glad the
hole is at
the other
end!
What if we
ignore Risk
and a miracle
just
happens?
Sometimes it’s better to ‘Manage’ than look the other way!

4. Gain the Advantage
Measure the Risk
4© Risk Advantage Limited
Hindsight Bias: we underplay
what we think we know about

5. Gain the Advantage
Measure the Risk
© Risk Advantage Limited 5
He’s going
on again
about a
‘Risk
Process’
We can’t let
that get in
the way.
We’ve a
Project to
deliver
Just smile
and say
we’re fully
supportive
Risk Management Process.

6. Gain the Advantage
Measure the Risk
6
Is the Process
Complex?
Initiate
Risk Management
Plan.
What is required
from the Risk
Management
Process.
Risk to
Objectives.
(Threat and
Opportunity).
Structure.
Ownership.
Estimate.
Evaluate. Response.
Action dates.
Owners.
Effect the Plan.
Monitor result.
Identify
Assess
Plan
Implement
Manage the Process
© Risk Advantage Limited

7. Gain the Advantage
Measure the Risk
© Risk Advantage Limited 7
Project Risk Management is a simple process that, when
understood, can be applied easily: it should be part of the
‘day job’.
The process is scalable with common sense usually
determining the level of management to be applied. You
would not expect to see the same amount of risk
management effort applied to small simple projects as you
would to larger complex ones.
Risk Management

8. Gain the Advantage
Measure the Risk
© Risk Advantage Limited 8
Risk and Issue – Complex?
Risks are managed ‘Proactively’:
 Using different material will significantly
reduce cost.
 The basement may flood next week.
Plan
Panic!
Issues are managed ‘Reactively’:
 The basement is flooding.

9. Gain the Advantage
Measure the Risk
© Risk Advantage Limited 9
Project Budget
Project Cost £100M
Mitigation Cost £2.8M
Risk Likelihood Impact
(£)
Mitigation
(£)
EV
Risk 1 70% £1.0M £300K £0.7M
Risk 2 50% £6.5M £230K £3.3M
Risk 3 70% £2.8M £240K £1.9M
Risk 4 50% £3.2M £1.9M £1.6M
Risk 5 90% £0.9M £130K £800K
Total = £14.4M £2.8M £8.3M
Management Reserve Specific £8.3M Non-Specific £2M
Project Budget = £102.8M
Risk Allocation = £10.3M
Total Budget = £I13.1M

10. Gain the Advantage
Measure the Risk
© Risk Advantage Limited 10
Risk Management
Reporting, is this Complex?
You need the ability to ‘interpret’ and
understand the output of any risk analysis.
You should challenge the results and not
simply accept them.
Outputs can be based on statistics: can we
always believe them?

11. Gain the Advantage
Measure the Risk
© Risk Advantage Limited 11
Does 1 always equal 1 ?
Let: a = b
Multiply both sides by a
a2 = ab
Add (a2 – 2ab) to both sides
a2 + (a2 – 2ab) = ab + (a2 - 2ab)
Simplify
2(a2 – ab) = (a2 – ab)
Divide both sides by (a2 – ab)
Can we rely on Maths ?
2 (a2 – ab) = a2 – ab
a2 – ab a2 – ab
= 1
2 = 1

12. Gain the Advantage
Measure the Risk
© Risk Advantage Limited
Choice can be Complicated
Performance risk can be difficult to define. For
example; is the risk that we have the design wrong?
Which of these is the ‘right’ product ?
OR
OR
12

13. Gain the Advantage
Measure the Risk
© Risk Advantage Limited 13
Project Risk Management should deliver ‘Benefit’, and
not be an ineffective overhead.
Benefits are:
 Selection of option/method to deliver the
project.
 Understanding the risk exposure level.
 Identifying and managing
mitigation/exploitation actions.
 Early warning of things going wrong.
Can this be simplified?
Risk Management

14. Gain the Advantage
Measure the Risk
14© Risk Advantage Limited
Risk Advantage Limited
Risk Assessment Tool
Assessment Tool

15. Gain the Advantage
Measure the Risk
© Risk Advantage Limited 15
This is NOT good
Risk Management!
Risk Management
Remember, Risk Management is a
positive activity designed to support the
Client, Supplier and Delivery staff.

16. Gain the Advantage
Measure the Risk
“Only those who will risk
going too far can possibly
find out how far one can go”
TS Elliot
© Risk Advantage Limited 16

17. Gain the Advantage
Measure the Risk
© Risk Advantage Limited 17
It’s far more COMPLEX – it involves
PEOPLE!!
Peter.campbell@riskadvantage.co.uk