Practical versus Theoretical Risk Management

Dear readers, I am having a very good friend of mine, Mr. CJP Stoneman, lend a hand on our blog today. He has a very interesting thread — one that I think you find quite interesting, informative, and even a bit enjoyable. So, CJ, the deck is yours.

Good evening, folks, this is CJP Stoneman blogging from my homestead in Talkeetna, Alaska. As Paul mentioned, I have a steak to filet so I will get right to the issue.

In reading a recent post by a well-known risk theoretician from the UK, I was again struck by the issue of the practical application of risk management versus the theoretical discussions of risk and uncertainty. This very intelligent doctorate discussed this type of aleatoric uncertainty, that type of epistemic uncertainty, and this type stochastic uncertainty as if it was something that risk practitioners sit around the water cooler discussing every day. The significant difference is that portfolio/program level risk management has to be practical not theoretical or erudite. Explaining risk terminology to risk owners and action owners is difficult enough without the need to segway down the path of academic obfuscation.

Now, having said all that, let me get to the point: risk management at the portfolio / program level is not difficult, mind-bending, or theoretical. It is simply the application of three very simple principles that we teach and implement every day with real world clients and risk environments:

1.    Risks are not bad – only unidentified risks are dangerous,
2.    Risks can only be mitigated, and
3.    Risk management must be proactive.

What these three statements say is that you must be interested, diligent and proactive with respect to the uncertain future events that can and do have the ability to turn your project into a tangled mess of email threads, angry business sponsors, and slipping schedules and budgets. Be interested in identifying those risks that are there in front of you, realize that the largest return on investment for risk management is the reduction of risk impact (mitigation), and doing this in a proactive not reactive manner is the hallmark of successful risk managers.

Finally, if you practice these powerful three concepts of successful risk management, it will not matter an iota if you know the difference between stochastic, aleatoric, or epistemic uncertainty. If on the other hand, if you don’t practice such practical risk management concepts, knowing the definitions and examples of these types of uncertainties will not save your projects or programs from uncertain future events that can have real-world consequences and costs.

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