Have conventional risk management practices failed in major project environments?

Have conventional risk management practices failed in major project environments?

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Have conventional risk management practices failed in major project environments? 
 

 

Riddle Me This

Over the past two decades the global project industry has seen significant improvements in defining and standardising project risk management better practice. Yet despite these improvements, large-complex projects still appear to be failing at the same rate and for all the same reasons.  If the current, industry accepted, project risk methodologies are indeed promoting "better practice", why are project failure rates not improving?

The current reality

Research published by IPA Global in 2012 identified that 65% of over 300 major infrastructure projects observed globally, had failed to meet their sanctioned objectives (i.e. to come in on time and within budget, whilst delivering the expected benefits). Furthermore the average cost overrun of these projects was 30%.  Most similar literature published since then seems to support such a high failure rate. Reports submitted as late as 2014, by the Auditors of both Australia's and the United Kingdom's publicly funded infrastructure projects, observed that most large, complex, government projects (55-65%) had yielded significant cost and/or schedule over runs. Also, the most recent Gartner and Chaos global survey reports indicate that between 65% and 80% of large technology projects fail to meet their sanctioned objectives, every year.

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These high failure rates are concerning as they imply that the project risk management techniques advocated by such globally accepted methodologies as PMBoK, PRINCE2, P3, ISO 31000, Monte Carlo and the OGC Gateway Review process have for the greater part been ineffective in large-complex project environments. Whether this is due to the methodologies themselves being incomplete, or simply due to flaws in the manner in which they have been applied, is open for discussion. However what is evident is the lack of industry validated data demonstrating how implementing any of these methodologies equates to increased project success.
 
In response to the above uncertainty, project owners appear to be visibly questioning the return on investment that existing risk management practices bring to a major project environment. This was no more evident than during the global commodities depression of 2014/15 when many large project organisations, as well as their contract engineering and advisory firms, shed significant numbers of risk management and assurance resources in an effort to lower overheads. Some major project organisations which had no choice but to cut really deep, dissolved their entire risk management capability as these resources were assessed as being non-critical to project delivery success.

Clearly something is missing

One can debate the backstory to these observed symptoms any way they choose, but the current reality is that we are living in a world whereby major projects have more than a 60% chance of failing, conventional risk management practices do not appear to improve these failure rates and as a result of this; dedicated risk resources are not being seen by project owners as critical to delivery success. Clearly something is missing from the manner in which conventional risk management practices add value to a major project environment and because of this; further thinking is required. "Establishing Risk Intelligence within Major Project Environments”  

I am currently undertaking a 2-3 year Higher Research Masters within the Science and Engineering faculty at Queensland University of Technology, whereby I am seeking to evidence the captioned topic.  The proposed research aims to assess the validity of the argument that a project’s ability to generate value through robust risk management practices is critically dependent on a number of inter connected principles, namely; good Governance, an appropriate Appetite for risk taking, Designing risk controls in early, effective risk management Systems, ongoing independent Assurance and an accountable risk Culture.
 
Although a large amount of research and literature is available on each of these six principles by themselves, our specific research aims to assess the effectiveness of the principles as a collaborative framework, with particular emphasis on their respective inter-dependencies.  Our view is that these principles are critically dependent on each other and the absence (or impairment) of any one of these principles yields an exponential reduction in a project’s risk management effectiveness. If a project truly aspires to reach a state of higher risk management effectiveness (otherwise known as risk intelligence) then all six principles need to be in place and functioning as a collaborative and inter-dependent risk management framework.

The inter-dependency phenomena

To demonstrate the significance of this inter-dependency, consider (as an example) a project with superior early warning systems and reporting frameworks in play. Such robust risk mitigation systems would do well to identify and escalate a potential project threat in its early stages.  However, if the project’s governance framework is flawed, then the executive decision making required to effectively assess and address the identified threat will be impaired, thus neutralising any effectiveness achieved by the risk systems in identifying the threat early on.  Furthermore, executive decision making (governance) is heavily influenced by both the leadership’s culture for accountability and their appetite for risk taking.  
 
So from this single scenario alone we can state with some certainty that a project's adopted risk systems are only effective in mitigating material project threats if they are supported by good decision making, an appropriate appetite for risk taking and an accountable risk culture. Therefore, any absence of these critical supporting principles will impair the project risk systems' ultimate contribution to mitigating material risks.

So what?

This scenario demonstrates a single example of how project risk management effectiveness can only be achieved through the collaboration of a number of critically dependent supporting principles. Similar dependency scenarios can however be mapped out from any of the other five mentioned principles, ultimately demonstrating that they are all dependent on each other and none of them can be succeed on an independent basis.  Of particular interest to our research is the implication that merely establishing a few of the documented principles (as apposed to the full suite) yields exponential gaps in risk effectiveness, hence embedding them all is the only true path to establishing risk intelligence within a major project environment.

The missing link

The criticality of these inter-dependencies may help explain why traditional risk management techniques have had such limited influence in improving major project success rates to date.   Few (if any) of the existing project risk management methodologies take an in depth look at the dependencies required for their specific brand of risk management to succeed. Most, either consciously or sub-consciously, provide only an isolated view of a systematically linear, risk management approach.

Our research

Our research seeks to understand and define the specific collaboration that needs to be achieved in the pursuit of enabling risk intelligence in major project environments. In particular, we aim to map out the specific touch points within each of the six listed principles to their corresponding touch points in the other five.  Hopefully this research will give project practitioners greater understanding as to the specific dependencies in play when attempting to effectively manage risk in major project environments. Ultimately our vision for this research is to help project practitioners become more effective in the manner in which they use risk management techniques to successfully delivery major projects.


Who this research is for 

  • If you are a Project Risk Professional who is frustrated with the limited influence your risk efforts have on senior decision making or perhaps your inability to demonstrate genuine value add, then this research is for you as it will hopefully help inform what the true focus and contribution of a project risk manager should be.     
  • If you are a Project Executive, Director or Manager who is frustrated with the limited value that your risk management investment appears to offer your cause, then this research is for you as it will hopefully help inform how an effective project risk framework should operate.     
  • If you are a Project Owner or Investor who has always wondered “are my appointed project teams risk effective?” then this research is for you as it will hopefully provide insight as to what owners should be demanding from their appointed project resources in terms of risk management structure and focus.
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                                        Warren Black
About:  
I am an Engineer, Risk Professional and Complex Systems’ Thinker who has particular interest in understanding how the complexity sciences may offer a better means to controlling emergent risks within highly complex, operating environments.  I currently consult on how to improve organisational Governance, Risk & Assurance practices so that they may reflect not only the degree of investment at risk, but also the specific environmental complexities in play. I believe that over the past decade in particular, 
 
I have accrued deep expertise in my chosen subject matter as evidenced by the fact that I was the head of Program-wide Risk for BG QCLNG and have held Senior Project Risk & Business Advisory roles at both Deloitte and Marsh & McLennan Risk Advisory Practices. I am also arguably one of only a handful a Risk Professionals who has built a full end-to-end risk management & reporting framework for an organisation of over $25 billion (BG QCLNG). At its peak this was the 8th largest project in the world and is hence a significant indicator of my capability.  
As a practising complexity & risk specialist, I have worked within two of the world’s largest mining project hubs (BHPB and Rio Tinto), three of the Queensland mega LNG projects (GLNG, APLNG, QCLNG), Australia's largest construction company (Leighton’s/CIMIC), The State of NSW's largest Infrastructure PMO (I&P PMO), Victoria's Largest Rail PMO (VicTrack), Brisbane's largest city Rail Project (Cross River Rail) and the largest publicly funded civil & infrastructure PMO in Queensland (Brisbane City Infrastructure).  
 
Also, as a demonstration of my commitment to my art; I am currently engaged in a PHD by Research whereby I am "Investigating a Complex Systems Approach to Complex Project Risk Management". I believe that the complexity sciences provide a new generation lens upon which to help risk management transition into a future world of complex working relationships and perpetual disruption.

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