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A Deeper Insight into the Human Factor

in Project Risk Management

 

SECOND EDITION

By Prof. Dr. Wolfgang Tysiak

University of Applied Sciences and Arts

Dortmund, Germany

 



Abstract

A fundamental understanding of risk, risk attitudes, risk ethics etc. is the basis of each risk management approach – not only in project management. Risk management requires human judgement, and this is often influenced and distorted by individual perceptions. After presenting the historic development of the human perception of risk and the individual psychological attempts to handle this matter, we try to work out necessary consequences to project risk management.

This paper can be seen as a continuation of a contribution to a former conference of the same format here in Riga (Tysiak (2013)).

Key words: project management, risk management, cognitive bias, simulation

JEL codes: D91, O22, C63

Introduction and Background

In every project there is the need to implement some kind of risk management (cf. PMI (2013), Kerzner (2009), Schelle/Ottmann/Pfeiffer (2006)), which normally contains the following phases:

(1) risk management planning,

(2) risk identification,

(3) qualitative risk analysis,

(4) quantitative risk analysis,

(5) risk response planning, and

(6) risk monitoring and control.

Since this approach is more or less similar in a lot of disciplines that apply risk management (like financial engineering, software development, supply chain management etc.), let us first broaden our view and look at risk management in general and not only related to projects.

The tasks (2) to (6) have to be seen as a chain/loop that you permanently have to work through simultaneously. But, as always, a chain is as weak as the weakest link: If you are not able to identify the crucial risks, there is nothing to analyze. If you are not able to evaluate the risks and therefore cannot plan how to respond in an adequate way, you cannot handle the risks.

Especially while applying the tasks (2) to (4), we have to be aware that they are of course performed by human beings and therefore by people with different attitudes in risk acceptance, risk handling, risk culture etc. The term “risk” in this context is a little misleading: In everyday language this term is associated with a negative outcome of an uncertain event, whereas a positive outcome is normally denoted by “chance” or “opportunity”. In risk management the term “risk” is used as a synonym of “uncertainty” (cf. the definitions in PMI (2013), Schelle/Ottmann/Pfeiffer (2006)) and therefore covers positive and negative aspects. Following, we will identify possible reasons for the disparities in human behavior in the context of uncertainty handling and thus try to provide support to manage it.

We want to start with a short reflection about the historic development of the cultural relation to uncertainty and then look at the individual way how human beings estimate probabilities. The first part is mainly based on the interesting book by Peter L. Bernstein “Against the Gods” (Bernstein (1996)), whereas the second part is based on the findings of Daniel Kahneman and Amos Tversky (Kahneman/Tversky (1974), (1979), (2000)) and originates from several psychological textbooks (cf. Esgate/Groome (2005), Fetchenhauer (2011), McKenna (2000)). Subsequently we want to determine what we can learn from this in general and conclude, which consequences result from this, especially for risk management in projects.

Historic Development of the Relation to Uncertainty

In the book “Against the Gods” by Peter L. Bernstein (1996), the historic development is divided into four phases:

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Second Editions are previously published papers that have continued relevance in today’s project management world, or which were originally published in conference proceedings or in a language other than English.  Original publication acknowledged; authors retain copyright.  This paper was originally presented at the most recent Scientific Conference on Project Management in the Baltic States at the University of Latvia in Riga in April 2018.  It is republished here with the permission of the authors and conference organizers

How to cite this paper: Tysiak, W. (2018). A Deeper Insight into the Human Factor in Project Risk Management; Proceedings of the 7th Scientific Conference on Project Management in the Baltic States, University of Latvia, Riga, Latvia, April 2018; republished in the PM World Journal, Vol. VII, Issue X – October.  Available online at https://pmworldjournal.net/wp-content/uploads/2018/10/pmwj75-Oct2018-Tysiak-Deeper-Insight-Human-into-Factor-in-Project-Risk-Management.pdf

 



About the Author


Prof Dr. Wolfgang Tysiak

Dortmund, Germany

 

 

 

In 1995 Wolfgang Tysiak became professor at the University of Applied Sciences and Arts in Dortmund. After studying mathematics, statistics, and business administration at the University Siegen, he received a doctoral degree from the University Wuppertal. After that he worked in the private sector for 12 years, mainly in a consulting firm. During this period most of his work was organized in projects and therefore he gained a lot of experience in applied project management.

At the UAS Dortmund he is a core member of the faculty of business administration. In the EuroMPM (European Master in Project Management) study program, he is mainly responsible for teaching risk management in project.

Wolfgang Tysiak is author/co-author of more than 40 publications, including books, articles in journals, and contributions to conferences.

Wolfgang Tysiak can be contacted at: [email protected].