Risk-based Learning

Revision as of 19:33, 19 March 2022

Developed by Gudrun Gudnadottir, February 2022

Abstract

Risk is defined as an uncertain event or condition that can have a positive or negative impact on one or more objectives. Positive risks represent opportunities, whilst negative risks represent threats. ^[1] Every day we confront several kinds of risks and must make calculated decisions about how to handle them. A calculated risk is a chance made after thorough assessment of the possible consequences. We are taking a calculated risk when we act knowing that the potential reward is significantly greater than the potential loss if the activity fails. Taking a risk forces us to develop. When we stay inside the boundaries of our comfort zones, our progress slows. We need to take risks and put ourselves in circumstances we've never been in before if we want to progress. Learning from risks is one of the most essential things a person or organization can do. The more risks you take, the better you will get at avoiding them. ^[2]

This topic is relevant to project, program, and portfolio management since it is critical for project managers to understand the driving forces behind risk management and to be able to apply it to risk assessments.

This article begins by providing an overview of risk-based learning through an introduction to the concept of risk-based. Following that, it explores the significance of risk management. Risk-based Project Management is addressed in depth, as well as its application to detect risks. Finally, the limits of risk-based learning are emphasized.

The Big Idea: An Introduction

What is Risk-based Learning?

The definition of risk-based from the Cambridge Business English Dictionary is:

1. “Done or calculated according to how much risk is involved.” ^[3]

Risk-based learning (RBL) is a type of learning environment in which the risk is the driving force behind the learning. Project risks motivate project managers to carefully analyze risks in order to reduce the probability of project failure. The more the risk involved with a project, the greater effort is required to obtain the necessary knowledge for the project to succeed. A key motivation for developing and implementing risk assessment systems is the ability to make informed decisions that reduce unnecessary risks. Risk-based learning assists in the identification, assessment, and evaluation of possible risks. ^[4]

Application

What methods can managers use to minimize risks and how is risk-based learning applied in project management? First, an overview of risk management is presented, followed by information on risk-based project management. Finally, the four main factors that must be evaluated while accessing risks will be addressed.

Risk Management

Risk is an inevitable component of project management. A project risk is any unanticipated event that may occur during a project that may have a negative or positive impact on the project's objectives. ^[5] Risk arises when there is a chance of multiple outcomes and the final outcome is uncertain. ^[6] Risk management involves defining the strategy, analyzing risks, as well as reaction planning and implementation. Risk management is an important part of project, program, and portfolio management for all organizations. It allows organizations and teams to increase the predictability of outcomes. It is about reaching the appropriate level of organizational process maturity and the optimal level of performance. Organizations grow and develop through improving the framework for identifying risks, learning from and assessing past results, and applying what they've learned to improve the process. In order to do that complete transparency and accountability is needed. ^[1] The risk identification activity identifies which risks may have an impact on the project, program, or portfolio and analyzes their characteristics. Participants in risk identification activities might include the program manager, program sponsor, program team members, risk management team, stakeholders, outside subject matter experts, customers, risk management experts and external reviewers as needed. New risks may emerge or become identified as the process develops. The frequency of iteration and the engagement of participants may vary, but the structure of the risk statements should remain similar. The identification activity should offer enough information to analyze and prioritize the risk. ^[7]

To learn, the following procedures must be followed in the organization:

• Distribute best practices throughout your organization. For this to happen, your organization's culture must be one of openness, with managers acting as co-dependent participants in the risk environment. Workers from the operational side of the business, as well as employees whose input is often ignored, such as the audit, finance, human resource, and risk management teams, must be included in this partnership. ^[8]

• Create a governing system. This is an essential component of the firm's operational risk management program. Governance encourages cultural honesty and openness while requiring responsibility from every employee, operating unit, and support function. ^[8]

• Identify, gather, and monitor a balanced collection of important performance indicators or metrics that assist leaders in identifying and mitigating control concerns. ^[8]

Risk-based Project Management

Risk-based project management uses risk-based thinking to learn how to manage the risk and uncertainty that comes with each project. When uncertainty is decreased, if not totally removed, the project's value is preserved and predicted results are attained. ^[2] It is critical to assess the effect of risks, since failure to do so may result in a loss of understanding of the overall impact on project objectives such as scope, time, cost, and quality. As a result, it is critical for each project organization to establish an effective risk management strategy. Implementing a project team culture ensures that the project progresses as planned, with the fewest unexpected events. ^[9]

Identifying risks in Project Management

There are four main factors that needs to be considered when determining what is a risk in project management: ^[9]

1. Risk Identification

Risk identification is the process of determining what could happen that will have an impact on your project. Risks should be recognized and addressed as early as possible in the project. Risk identification occurs throughout the project life cycle, with a focus on major milestones. Some risks will be obvious to the project team while others will require more effort to identify, but will still be predictable. ^[9]

2. Risk Analysis

Risk analysis entails evaluating how project goals and objectives may alter as a result of the risk event's influence. Once the risks have been identified, they are analyzed to determine the qualitative and quantitative impact of the risk on the project so that suitable measures may be performed. To analyze risks, the probability and impact of the risks need to be determined. ^[9]

Probability:
Probability refers to the likelihood of a risk occurring. To analyze risks, the following guidelines are employed:

• High probability – (80 % ≤ x ≤ 100%)
• Medium-high probability – (60 % ≤ x < 80%)
• Medium-Low probability – (30 % ≤ x < 60%)
• Low probability (0 % < x < 30%)

Impact:
Risk analysis entails determining how the risk event's impact will affect project outcomes and objectives.

Figure 1: Impact-Probability Matrix (own figure, based on ^[9])”

• High – Catastrophic (Rating A – 100)
• Medium – Critical (Rating B – 50)
• Low – Marginal (Rating C – 10)

3. Risk Exposure

Risk Exposure, also known as Risk Score, is calculated by multiplying the Impact Rating by the Risk Probability. The colors signify the amount of urgency in risk response planning and are used to establish reporting levels as is shown in Figure 1.

4. Risk Occurrence Timeframe

The timeframe in which this risk will have an impact is identified. ^[9]

Figure 2: Average quiz scores as overall scores and separated into gender. (own figure, based on ^[10])”

Study on Risk-Based Learning Games

In 2014, undergraduate students conducted a study in which they designed a risk-based learning game for students in order to explore if such learning games may increase later memory of information. Undergraduate neuroscience students led 90-minute scientific workshops for 9-10 year old students (n = 448) separated into 'Risk,' 'No Risk,' and 'Control' groups. During the workshops, 'Risk' groups were given multiple choice questions (MCQs) that required small groups of students to allocate tokens to the answer(s) they thought were right. ^[10]

The group received the tokens and an equal amount back as a prize if they answered correctly, but they lost the tokens if they answered incorrectly. The group at the end of the workshop that had the most tokens won a price. MCQs without the risk component were given to the 'No risk' group, whereas no MCQs were given to the 'Control' group. At the end of the workshop, the students were given a neuroscience test based on the workshop material. Students in the 'Risk' group remembered material considerably better one week later than students in the 'No Risk' and 'Control' groups. This is reinforced by responses from students in 'Risk' classes, who stated that the 'Risk' workshops were more interesting than the 'No risk' and 'Control' workshops. These findings show that risk has a role in the classroom and can be used to interest students and motivate them to improve engagement in the classroom. ^[10]

Limitations

Figure 1: Impact-Probability Matrix (own figure, based on ^[9])”

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Annotated bibliography

1. Dikmena, I., Birgonula, M.T., Anacb, C., Tahc, J.H.M. and Aouadd, G. (2008). Learning from risks: A tool for post-project risk assessment. Automation in Construction, 18(1), 42-50.

In this paper, a learning-based approach is proposed for risk management (RM). In order to implement this approach in practice, a tool has been developed to facilitate construction of a lessons learned database that contains risk-related information and risk assessment throughout the life cycle of a project. The tool is tested on a real construction project.

2. Lavanya, N. & Malarvizhi, T. (2008). Risk analysis and management: a vital key to effective project management. Paper presented at PMI® Global Congress 2008—Asia Pacific, Sydney, New South Wales, Australia.

This conference paper describes the structured Risk Management method used by Nokia Siemens Networks to avert crisis situations and incorporate lessons learned from previous missteps. It emphasizes that effective and early risk assessment and management ensures project objectives are met, resulting in lower rework costs.

3. The Standard for Risk Management in Portfolios, Programs, and Projects. (2019).

A book about the practice standard for Project Risk Management. It addresses the fact that certain events or conditions may occur with impacts on project, program, and portfolio objectives. Risk Management processes allow for the consideration of events that may or may not happen by describing them in terms of likelihood of occurrence and possible impact.

References

1. ↑ ^{1.0 1.1} The Standard for Risk Management in Portfolios, Programs, and Projects. (2019). Retrieved from https://findit.dtu.dk/en/catalog/5de50a6fd9001d00e06d6ccc on March 10th 2022.
2. ↑ ^{2.0 2.1} Pira, P. (2019). Life's Short. Take More Risks. Retrieved from https://www.forbes.com/sites/forbesbooksauthors/2019/08/23/lifes-short-take-more-risks/?sh=62ff41f12ad5 on February 20th 2022.
3. ↑ Cambridge University Press. (2022). risk-based adjective. Retrieved from https://dictionary.cambridge.org/dictionary/english/risk-based on February 13th 2022.
4. ↑ Dikmena, I., Birgonula, M.T., Anacb, C., Tahc, J.H.M. and Aouadd, G. (2008). Learning from risks: A tool for post-project risk assessment. Automation in Construction, 18(1), 42-50. Retrieved on February 13th 2022 from https://doi.org/10.1016/j.autcon.2008.04.008
5. ↑ project-management.com. (2022). Common Types of Risk in Project Management 2022. Retrieved from https://project-management.com/types-of-risk-in-project-management/ on February 13th 2022.
6. ↑ Williams, T. (2017). The Nature of Risk in Complex Project. Risk Institute, University of Hull, 48(4), 55-66. Retrieved on February 13th 2022 from https://doi.org/10.1177/875697281704800405
7. ↑ The Standard for Program Management – Fourth Edition (2017). Retrieved from https://findit.dtu.dk/en/catalog/5c45c08ad9001d2f38206ba6 on March 6th 2022.
8. ↑ ^{8.0 8.1 8.2} Rael, R. (2012). Smart Risk Management: A guide to identifying and calibrating business risks. New York, NY: American Institute of Certified Public Accountants, Inc. Retrieved from https://onlinelibrary-wiley-com.proxy.findit.cvt.dk/doi/pdf/10.1002/9781119449430 on February 19th 2022.
9. ↑ ^{9.0 9.1 9.2 9.3 9.4 9.5 9.6} Lavanya, N. & Malarvizhi, T. (2008). Risk analysis and management: a vital key to effective project management. Paper presented at PMI® Global Congress 2008—Asia Pacific, Sydney, New South Wales, Australia. Retrieved from https://www.pmi.org/learning/library/risk-analysis-project-management-7070 on February 19th 2022.
10. ↑ ^{10.0 10.1 10.2} Devonshire, I., Davis, J., Fairweather, S., Highfield, L., Thaker, C., Walsh, A., ... Hathway, Gareth J. (2014). Risk-based learning games improve long-term retention of information among school pupils Plos One, 9(7), e103640. Retrieved on March 4th 2022 from https://doi.org/10.1371/journal.pone.0103640