Cognitive risk management in construction projects

Cognitive risk management in construction projects will be this article main topic.

There is a difference in definition of risk and uncertainty, as uncertainty is the absence of information required to make a decision. With a cognitive approach to risks the risk management becomes three dimensional, the risk source, the risk event and the extent of how a decision maker can respond to the risk source and event as the probability of a future event is a property of the decision maker. As risks are from definition deviation from expected value, positive or negative. Decisions are made to eliminate risks and with sufficient knowledge of possible risks turn them into chances, thus introducing risk management.

In order to manage risk and uncertainty it is important to understand four elements of the risk management process of identifying, assess, respond and control of the risk events and their sources and the corresponding threats and opportunities to the risk event. These elements will be further inspected and existing frameworks. The limitations of these four elements will then be further discussed.

The cognitive model of risk and uncertainty on projects will be introduced and the four standpoints of knowns and unknowns, identifications in the modern construction industry, assessment of the risk with the use of tools as the probability/impact matrix and with the classification of the risk source and risk event the consequences can be mitigated or avoided altogether with the proper approach to risk management in construction.

Risk and uncertainty

Risk in theory could be described as the variation from an expected value, negative or positive. According to the Cambridge dictionary, risk is the possibility of something bad happening . It is in general definition something that is interpreted as a loss and can in fact be modelled in mathematics as the probability of the event multiplied with the consequences. Risk is not to be confused with uncertainty as the uncertainty is the absence of information required for the decision that needs to be taken at a point in time . Decisions are made to eliminate risks and with sufficient knowledge of possible risks turn them into chances, thus introducing risk management. By introducing the dimension of time into the definition of risk so that risk events become time based, it is possible to explain risk and uncertainty as a three-dimensional framework of the risk source, the risk event and the extent of how a management can respond and reduce the impact of the risk event .

The cognitive model

Cognitive action is the mental action or process of acquiring knowledge and understanding through thought, experience, and the senses . When thinking of this in terms of project management on construction projects and decision making, it becomes clear that the information space is a perception or perspective of the project manager. Cognition becomes a big part of elicitation of risk as it depends on the ability and range of the decision maker. Studies on this topic have led to two important points of cognitive biases: the information process of the human mind is limited in its nature, that our experience, feelings and anticipation influence what we actually perceive due to the cognitive simplification mechanisms in our minds, and that the nature of a task influences greatly the strategy chosen to handle the task .

From the decision maker’s perspective of a risk source, it is defined in the space from a certainty to impossibility in a cognitive model of risk and uncertainty on projects. The approach of managing risk in the cognitive model is fundamentally about perception of risk events and their impact given the risk sources with the information available at the time of the decision. It makes a difference in the perception of where a probability distribution can be applied to a risk event from data analysis and where no probability distribution can be applied due to no available data .

Rumsfeld's known knowns

"Reports that say that something hasn't happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – the ones we don't know we don't know"

Donald Rumsfeld gave this response to a question at a U.S. Department of Defense news briefing on February 12, 2002 when asked about the lack of evidence of the existence of weapons of mass destruction in Iraq. This has since then been used as a multi layered definition of risk and uncertainty from a cognitive standpoint . The known knowns refer to the cognitive condition of risk where the source has been identified and a probability distribution can be applied to the risk source to determine the probability of a risk event. The known unknowns refer to the cognitive condition of uncertainty where the source has been identified and a probability distribution cannot be applied to the risk source to determine the probability of a risk event. The unknown knowns refer to the cognitive condition of uncertainty where the source has been identified and the probability distribution can be applied but the information is kept private, for example the client has information that is not communicated to the design team of a particular project. The unknown unknowns refer to the cognitive condition of uncertainty when the risk source has not been identified and therefor the probabilities are not applicable , this could be for example natural disasters that are unforeseen and have unforeseen consequences on the construction project.

Cognitive risk management in construction projects

According to the Project management institute, PMI, the definition of Risk management in projects is: “to identify and prioritize risks in advance of their occurrence, and provide action-oriented information to project managers. This orientation requires consideration of events that may or may not occur and are therefore described in terms of likelihood or probability of occurrence in addition to other dimensions such as their impact on objectives” . In order to manage this uncertainty there are various tools and protocols available to assist in the decision making process. But the process of making a good decision and to avoid making bad decision can be divided into four main elements .

The first element is the analysis and identification of the risk source and the possible risk event given the source. This is considered as the most important element of risk management as they can have the biggest impact on the precision of the risk assessment . It is important to know what is to be managed, if a risk fails to be identified it cannot be managed. The second element is the assessment of the risk source where the impact and probability are determined through qualitative and quantitative tools and techniques . The third element is to respond to the risk sources, to take the relative measures and actions to each and every one of them. The fourth element is the control of the risks throughout the project life cycle