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04.05.2016 15:07

Don’t get it wrong – risk management is more than mitigation

Kim Wikström, Senior partner

Uncertainty in large projects is not only a risk for negative consequences but also a source for innovation and improving efficiency.

Large projects, or mega projects, are increasingly uncertain due to their growing in size and complexity. The uncertainties are caused by increased integration challenges of automation, digitalization, overregulation and new organizational settings. At the same time the risk for cost overruns and failure to deliver as promised increases. Mega projects in Europe are on average delayed by two years, and have an average of 60 % in cost overruns. Costs for building roads and train systems in the US and Europe are sky high compared to the Far East and the Middle East. Right now, the Helsinki metro extension is a typical example of such a cost overrun failure.
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The way we manage risk and uncertainty is a primary reason for failure

The more uncertainty there is, the tougher it is to predict costs for investments and the overall outcome. So why do we tend to overpromise? Or is it so that our initial estimates are on a realistic level but the actual way we execute these projects destroys the value potential? I argue that we focus too much on conventional risk mitigation while we do not embrace the high level of uncertainty as a source for innovation. If we saw uncertainty as a source for innovation, it would result in an improved end product and a more efficient way to manage the actual project. We tend to focus on the original scope rather than on the overall system context where the investment is placed. Taking a more systemic view with a focus also on the external actors and issues is an important source for innovations during the actual development of the project. Mega projects normally go on for many years, during which both insight deepens and potential for changes increases in the overall ecosystem.

In what way could we increase the innovativeness and efficiency of large investments? 

We have developed the traditional risk management process towards a multifaceted challenge management process where the specific challenges in a project are addressed and turned into actionable knowledge. This process is an integral part of outward-looking project management where sensing, and reflecting on, different opportunities happens on a continuous basis.

To learn more about our Challenge Management Process, contact Eeva Vuorinen (eeva.vuorinen(at)pbi.fi)

You can read our milestone article “Defining uncertainty in projects ” here.



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