Think Slow and Act Fast, A New Way of Thinking about Risk Management in Times of Turbulence and Uncertainty

by | Oct 1, 2016 | Portfolio Management, Program Management, Project Management, Risk Management

Projects, programs, and portfolios are the foundation of successful business execution, which by nature is novel, complex, and risky. The composition of objectives, stakeholders and resources are unique to the circumstances of each project, making the path from the current state (project start) to the desired state (project outcomes) an often foggy and treacherous. The best path is only realized once already on the path with sometimes painful experiences that shed light on the path. This uncertainty around the ‘best path’ for business execution is a very real contributor to project failure. And furthermore, traditional risk management approaches have been ill-equipped to deal with this uncertainty and risk, even less so in the fast-changing economic and technological environment of the present. Supportive of this view are the findings from a survey of 250,000 projects, where 72% of projects were rated as either “failed” or inadequate regarding the initial project goals (Standish, 2001). To achieve greater success, projects need to be managed and executed in such a way that reflects the complexity of their environments (Atkinson, Crawford & Ward, 2006). Projects should be executed with speed and agility, making them adaptable in the face of risk. And for this, the approach to identifying, assessing and managing risk must undergo a fundamental shift.

 

Think Slow

Traditional approaches to risk management have focused primarily on project planning and control (Atkinson, et al., 2006). Now while careful planning should not be downplayed, many projects, especially in the face of a rapidly advancing technological age, are too highly complex to be comprehensively catered for by scenario and project planning. Because of this, flexibility and agility become necessary characteristics to manage uncertainty during the actual execution of projects (Huchzermeier & Loch, 2001).

 

Gong and Janssen (2012) define flexibility as the ability to react to change and agility as the speed in responding to change. Uncertainty, in turn, has often been defined simply as “what we don’t know” (Stewart & Fortune, 1995). The challenge is that even when we have the necessary information available to uncover what we don’t know, people are prone to drawing only on that information that supports previous experience. This means that when faced with risk and uncertainty during project execution, project managers and their teams subconsciously draw only on that evidence that points toward the original project plan, thereby jeopardizing project success (Kahneman, Lovallo & Sibony, 2011). Kahneman (2011) terms this manner of thinking and decision-making System 1 thinking.

 

System 1 thinking is quick, effortless and intuitive, and can often lead to flawed decisions anchored on pre-implementation planning. Applying System 1 thinking to risk identification, assessment, and management can thus result in less flexible and agile project execution. Contrastingly, System 2 thinking, also known as thinking slow, is controlled, intentional and effortful (Kahneman, 2011). Thinking ‘slow’ about project risk and uncertainty results in more accurate identification and assessment of risk, and in turn, more agile management of that risk during project execution (Shleifer, 2012).

 

Act Fast

In their celebrated work on systems thinking and risk in IT projects, Stewart and Fortune (1995) looked at the phases of risk about the project life cycle.They recognized risk assessment and identification only at the feasibility and analysis stages of the project lifecycle. However, this perspective is constraining when new and unexpected risks emerge during implementation. Events that do not conform to the original project plan, such as design or specification changes, often create uncertainty and panic that in turn leads to quick decision-making and action-taking without fully considering the broader implications (Atkinsin et al., 2006). For example, consequences for scheduling, supplier deadlines, or even communication channels can impact various stakeholders, and ultimately the success of the project. Thinking fast, or System 1 thinking, produces flawed decisions about implementation stage risk.  But when System 1 and System 2 thinking are combined, the result is a natural synergy that slows down when attention is required for analysis and planning and speeds up when it comes to taking action, thereby enabling flexibility and agility.  The effectiveness of this techniques requires the practice of System 2 thinking in the risk identification and assessment phases where the thorough investigation is required.  But when risks manifest themselves and rapid response is required either to execute the pre-determined contingency plans or to react to the changing nature of risks, the thorough analysis enables quicker actions to mitigate threats or exploit opportunities.

 

Thus, with the speed of change and technological advancement, the way that we think about risk at the project execution stage needs to adapt to a slower thinking approach combined with faster actions. By thinking slower, more accurate identification, assessment and management of risk will allow project teams to react with purpose. This in turn will equip project teams with the necessary agility to deal efficiently and effectively with risk and uncertainty.

 

A version of this topic was presented at PMI Silicon Valley Symposium on October 3rd, 2016.

 

References

  1. Atkinson, R., Crawford, L., & Ward, S. (2006). Fundamental uncertainties on projects and the scope of project management. International Journal of Project Management, 29(2006), 687-698.
  2. Gong, Y., & Janssen, M. (2012). From policy implementation to business process management: Principles for creating flexibility and agility. Government Information Quarterly, 29(2012), 61-71.
  3. Huchzermeier, A., & Loch, C.H. (2001) Project management under Risk: Using the real options approach to evaluate flexibility in R&D. Management Science 47(1), 85-101.
  4. Kahneman, D., Lovallo, D., & Sibony, O. (2011). Before you make that big decision. Harvard Business Review, 50-60.
  5. Kahneman, D. (2011). Thinking, fast and slow. New York: Farrar, Straus and Giroux.
  6. Shleifer, A. (2012). Psychologists at the gate: A review of Daniel Kahneman’s Thinking, Fast and Slow. Journal of Economic Literature, 50(4), 1080–1091.
  7. Standish (2001). Extreme CHAOS, The Standish Group International, Inc., Boston, MA, Rep. 2001.
  8. Stewart, R.W. & Fortune, J. (1995). Application of systems thinking to the identification, avoidance and prevention of risk. International Journal of Project Management, 13(5), 279-286.
  9. Winter, M., Smith, C., Morris P., & Cicmil, C. (2006). Directions for future research in project management: The main findings of a UK government-funded research network. International Journal of Project Management, 24(2006), 638-649.