Elegance Can Be the Enemy of Efficiency

I’ve been auditing some of the advanced Scala courses offered by École Polytechnique Fédérale de Lausanne, and as always am curious about my own solutions compared against what other people come up with.

One of the things I love about Scala is its elegance. Once you understand the language, you can achieve some really complex things quickly and easily — and, elegantly. So, a problem posed in the coursework is to write a function that, given a character in a game field, returns the first index of that character in the field.

After writing my own solution, I Googled a few other solutions. Here’s one:

def findChar(c: Char, levelVector: Vector[Vector[Char]]): Pos = {
   val ys = levelVector map (_ indexOf c)
   val x = ys indexWhere (_ >= 0)
   Pos(x, ys(x))
}

This is pretty elegant. In fact, I was first taken by how functional it looked — more functional than my own code. But there’s a problem. This elegant code is potentially very inefficient.

Let’s assume the game field is big. It consists of a Vector of Vectors, and the above code searches the entire game field. That is, even if the character matches the very first element in the field, all the rest of the elements will be scanned:

  1. ys maps over the entire Vector of Vector scanning for the index of c.
  2. x then scans the vector ys for a positive hit.
  3. Then the coordinate is returned from the points described by x and ys(x).

So the obvious problem here is our elegant, functional, good looking code could be terribly inefficient. Here’s my implementation:

def findChar(c: Char, levelVector: Vector[Vector[Char]]): Pos = { 
   @tailrec def iterate(x: Int): Pos = levelVector(x).indexOf(c) match { 
      case y if y > -1 => Pos(x, y) 
      case _ => iterate(x + 1) 
   } 
   iterate(0) 
}

Ok, it’s not as pretty, it’s longer, but — it’s still functional by design. More important, it will look for the character using a linear search, and stops when it finds the character. It’s efficient:

  1. We start in the first Vector, checking for the index of the character.
  2. As soon as we find it, the function returns. Otherwise, it recurses and moves to the next Vector.

It’s not as pretty but it preserves efficient design. Just because we can write pretty, elegant code doesn’t mean we always should.

Incidentally, you could also achieve nearly the same efficiency using something like this:

val row = levelVector.indexWhere(_.contains(c))
val col = levelVector(row).indexOf(c)

Personally, I prefer to avoid any potential inefficiency — but, over-optimizing can also be a problem. It’s probably best to find a happy balance. Don’t ignore efficiency, but don’t spend all your time optimizing situations that, quite likely, don’t really need the effort.

Engagement Style And International Success

If you missed the first part of this six-part series, see: Part 1 of the series, Creating An International Culture Of Success, or see the entire series right here.

Engagement Style

Do we get right down to business, without knowing much about the other person — or, do we build a strong and trusting relationship, only talking about business after we know each other well?

Sending a delegate to represent an American company must be well thought out before departure. This delegate must have authority as well as longevity in the organization. Replacing delegates during the relationship should be done with care and planning. The new contact will need to be brought in slowly to transition the relationship. It is wise for American firms to engage more than one delegate to a relationship with the BRIC or they risk the business leaving with a delegate who departs. — Moore, Brandi, The Little BRIC Book.

Most cultures throughout the world choose the latter path: A relationship-driven engagement style. Conducting business outside of the “in group,” the trusted circle of family, associates, and professional contacts that you know well, is unheard of. It is far better to go into business with someone that you know well, even if the price or product isn’t the best. You know what you’ll be getting. Furthermore, the combined influence of your in group means everyone will do their best for you — and if they don’t, there are always solutions to improve the situation.

The Western, venture-driven style is very different. It’s found in relatively few cultures — probably less than 10% or so of the world. America is perhaps the most dramatic example of a culture that believes in doing business first. It’s a message driven culture, promoting products, uniformity, and a “best product and best price gets the business” ideal. Some of this ideal is beginning to leak into other cultures, but culture doesn’t change quickly.

The Global Project Compass identifies the following management disciplines as being most directly affected by engagement style:

  1. Accounting Policy & Costing
  2. Risk Management
  3. Procedure & Outsourcing Management
  4. Business Continuity & Recovery
  5. Information Assurance & Security

Accounting Policy & Costing

Policies regarding accounting and cost management are deeply affected by engagement style. Strongly relationship driven cultures tend to support more relaxed, flexible policies when it comes to managing the flow of money. This flexibility affords hiring family members, awarding favored contracts to close allies, and giving favors such as gifts for professional favors.

Unlike relationship driven cultures, many cultures focus on cost and performance first, and enact policies accordingly.

Venture driven cultures tend to support stronger accounting and cost management policies, leaning more heavily on the rules of business. This is particularly true in countries such as the United States, Switzerland, and Germany. In such cultures, the favoritism afforded by strong relationships is regarding as nepotism or corruption.

It’s important to remember that both systems are unique and both kinds of cultures feel their system works very well.

Risk Management

Different cultures approach risk from very different perspectives. Cultures that prioritize relationships tend to view those relationships as a means to avoid risk. Awarding an important contract to a close relative or friend provides security. The close relationship helps eliminate unknowns. While price and performance may not be the best, they are known. The strong “in group” network that defines the relationship means everyone will want to support the in group. Performance becomes a matter of saving face.

Venture driven cultures tend to equate risk reduction with choosing the best performer. Giving favored treatment to friends and relatives is viewed as a risk, and potentially disastrous. This usually means taking as objective an approach as possible. Contracts are awarded based on price/performance analysis, and risk is reduced by evaluating past performance. Contingency plans for poor performance generally involve financial penalties or having a contract revoked (not something a relationship driven culture is comfortable with).

Procedure & Outsourcing Management

As pointed out above, the typically “Western” venture driven style eschews anything that seems like favoritism. When talking about outsourcing this is probably one of the biggest differences between venture driven and relationship driven culture. The relationship driven culture will stick to its in group, favoring existing relationships. The venture driven culture assumes that every project must be objectively awarded based on performance criteria.

This also shows up in organizational procedures. Venture driven cultures tend to have written procedures that are enforced through business mechanisms (such as forms, systems, and policy review). Relationship driven cultures, on the other hand, rely more on informal, cultural procedures. Important policies are enforced not by forms and systems, but by the peer network and cultural environment.

Business Continuity, Recovery, & Security

Who is responsible for the continuity of the business? Many venture driven cultures will push for a separation of concerns, using an objective, often outside third party. This might be a service provider responsible for auditing and securing an information network.

Relationship driven cultures tend to prefer a more closely-held approach. Sensitive information is often controlled internally, and important individuals within the organization are tasked with ensuring continuity.

Each culture’s approach to security and information management can be very different. Probably the most dramatic example of this is the American view on intellectual property protection versus that of Chinese culture. While China is definitely changing, the American perception that intellectual property is owned and protected by law is not commonly shared in China. We routinely hear stories about how products are copied in record time in the Chinese market — and U.S. firms are constantly evolving strategies to stay ahead of the Chinese copycats.

Cover graphic attribution: The artist and visual designer Yang Liu was born in China and lives in Germany since she was 14. By growing up in two very different places with very different traditions she was able to experience the differences between the two cultures first-hand.

Where To Invest Around The World In 2014

Are you looking to diversify your investments, spreading your money around the world? It’s a great idea. A multinational investment strategy protects you from fluctuations in one region. But in today’s tumultuous world, with geopolitical upheaval and unsteady markets, where should you invest?

Daniel Altman may have what you need. In Foreign Policy’s Where To Invest Around The World, 2014 Edition, he offers some great insight. His Baseline Profitability Index (BPI) maps economic growth, financial stability, physical security, corruption, expropriation by government, exploitation by local partners, capital controls, and exchange rates. His goal: To map the total pre-tax return on investments in a region.

Baseline Profitability Index (BPI)
Baseline Profitability Index (BPI)

Darker countries indicate a higher score on Daniel Altman’s Baseline Profitability Index for 2014, meaning they are a better bet for foreign investment. The index considers asset growth, preservation of value, and repatriation of capital. Botswana ranks the highest in 2014 with a BPI value of 1.31; Venezuela ranks the lowest at 112, with a score of 0.63.

As Altman writes, the shifting global landscape has moved a lot in the past year: “In just the past 12 months, quite a lot has changed in the global investing environment. Some struggling economies have found their feet, notably in Europe, while others around the world have fallen victim to conflict. A few have improved their economic institutions, too; neighbors Greece, Macedonia, and Turkey all bolstered legal protections for investors, and nearby Azerbaijan strengthened its property rights.”

This year’s edition of the index has a few changes over last year. Most notably, a new source is used for measuring the likelihood of government expropriation. Altman is using the Index Of Economic Freedom in this 2014 edition.

The index suggests that not every fast growing country around the world is a great target for investment. You need to take into account the risks of each market — that’s the purpose of the index, after all. But it’s also important to make an educated decision. All indexes have their limits. For example, after switching to the Index Of Economic Freedom, China dropped from position 21 to 43 on the BPI. While the new approach is hopefully more accurate, it also illustrates why it’s important to understand the data.

Despite the change to the Index Of Economic Freedom, and shifts in the geopolitical landscape in the past year, India has maintained its position at number 6 on the index. Altman feels this is, “In large part because of the potential for real appreciation in the rupee.” He adds, “This may now be more likely than ever, thanks to Narendra Modi’s supposedly reform-minded government and the strong hand of Raghuram Rajan at the central bank.”

Creating An International Culture Of Success

The International Business Dimension

Multinational teams present new challenges for the International manager. There are logistics problems: How do you coordinate teams that work in different time zones? What kind of collaboration can you create in a team that rarely sees one another?

As well as the logistic problems come cultural problems. For example, successfully creating a culture of innovation can be a challenge. Honeywell experienced this, according to a November, 2013, Time article, when Rameshbabu Songukrishnasamy began working as general manager of the company’s R&D centers in Shanghai and Beijing. He found his employees were not innovating. They weren’t tinkering or inventing on their own — not a positive sign in an R&D lab! “They were happy just doing what they were asked to do,” Rameshbabu says. The problem is, R&D is about doing something new.

A project manager for a large corporation in Brazil recently told me that the PMI Book of Knowledge is used infrequently at best inside Brazilian projects. He also warned against assuming that someone with a PMI certification has extensive experience, as is the case in the US. — Moore, Brandi, The Little BRIC Book.

Rameshbabu found that his Chinese workers had a fear of failure. They worried that the company would be upset if their work did not yield positive results, so they didn’t experiment. Another problem is that some Chinese engineers “tend to shy away from critical questioning,” a process that is fundamental in R&D. “The reason they are able to make so much innovation in Silicon Valley is that people question the status quo and find alternative ways,” says Rameshbabu. But he found that Chinese culture and education focused on rote learning, not critical thinking.

Creating A Culture Of Success

Creating successful International programs requires understanding and adapting to different business cultures. Applying Western management practices in Asia will fail, just as surely as transplanting Western employees into an Eastern environment. Imagine an independent, critical thinker from Silicon Valley landing in Foxconn, Shenzhen — where challenging the status quo is forbidden.

Team dynamics play a huge factor in management style, objectives, and capabilities. Building a culture of innovation is just one example of where these dynamics become complicated. Power distance will affect everything from goal setting to how problems are socialized. Communication style can quickly lead to misunderstandings. Differences on the fluidity of time can mean completely missing the mark with customer deadlines. And differences in identity and engagement style can lead to initial confusion, bad first impressions, or distrust.

This is why understanding business cultural practices is so important. Hyrax International LLC has a program that explores each of these five preferences. The program examines each of 27 different management disciplines, such as goal setting, risk management, change management, and assessing outcomes. The affect of business culture on each discipline is explored and explained, providing a road map to success on the International management scene. The company also offers many free resources to explain and explore International project management, and is also sponsoring Successful International Project Management, an in depth book that maps project management processes to cultural preferences.

We’ll be posting five more parts to this article (read Part 2, or see the entire series right here) in the coming couple of weeks. Each post will look at one of the five business cultural preferences, and briefly introduce how that preference impacts and affects the 27 management disciplines.

Hyrax International LLC’s Global Project Compass™ is the only visual map that clearly shows the connection between business culture and business process. This is what makes Cross Cultural Management™ so much more effective than traditional management.

The Compass maps 27 project management disciplines directly to business cultural preferences, and shows how these preferences affect business. The goal of the Global Project Compass, and Hyrax International’s associated management program, is to show how culture affects businesses worldwide — and to provide a clear map on how businesses can adapt successfully.

Did you know India has a little more risk today?

Euler Hermes, the 100-year-old trade credit insurance firm, has a fantastic little tool for assessing credit risk around the globe. Euler Hermes monitors country risks in 241 countries and territories. Their country risk map aims to assess the risk of non-payment by companies in a given country.

In other words, if you’re thinking of developing a new market, you can use this little tool to see how likely (or unlikely) it is you’ll get paid. The map is interactive, and updated periodically to reflect changes in the global economy.

As many of you know, we do a lot of business in India — so, I was pretty surprised to see that Euler Hermes upgraded India from “low risk” to “medium risk” this year. In retrospect, while it took me by surprise, it probably shouldn’t have. India still suffers from an immature business market. I can see how this can translate into higher credit risks.

Country Risk Map
Country Risk Map, Euler Hermes (click to open)

It also underscores how important it is to work with a trusted source, and an experienced partner, no matter what country you go into. Euler Hermes is one such resource when it comes to insuring your revenue stream — whether its import/export, manufacturing, or even R&D. If you’re doing International business, trade credit insurance is a must, and these guys know how to do it well.

Getting back to India: Yes, maybe it is a little bit more risky today, at least when it comes to credit risk. But that’s no reason to stay away, it just means you need to account for those risks. Engage with a partner that really knows how to work with India, take the right precautionary steps (such as using trade credit insurance), and move forward with your eyes open. India is an incredible market opportunity, and not one to shy away from!

How Do I Find The Right Global Partner?

Businesses are thinking bigger now. Your partners need to understand your values, win business and support contracts for you, and vice-versa. But, finding the wrong global partner could be a huge blunder. Here are few tips to help you make the right decision.

Hi, I am Zacharias Beckman, president of Hyrax International and today I want to talk about finding the right partner to go into business with, overseas. A lot of our customers come to us because they are in business with the wrong partner. They found a great looking ad on the internet, they sourced a request for proposals, and they got back an excellent response. Before you know it, they’re signing a contact and they’re going into the business — really, with somebody that they don’t know.

The problem with this is that, on an international scale, contracts don’t mean the same thing that they do locally. Part of this is just a practical matter. Enforcing a contract overseas is very hard. It’s expensive, it’s time consuming. But more important than that, is that relationships are the core of business in most of the world. That means that to find a really good partner you have to build a relationship network. You’ve got to have feet on the ground, overseas, building connections that you can use to find partners that are trustworthy. Those connections are what’s going to help you find the right partner, internationally.

The most important thing here is that, when it comes to finding a partner overseas, you need to have a relationship. You need to have feet on the ground, you need to build a trusted network, and you need to create a relationship based in more than just a written contract. And you need to understand the culture in which you are doing business, so that you really know how to relate to and build that strong relationship with your new partner.

Why we can’t just burndown everything

Prashad is the project manager for a new product. After reviewing the project scope, Prashad’s team gives it an initial estimate of about three to four months to complete, which is good enough for management. The project kicks off, and using Scrum along with a little bit of project management, the project gets underway. The first month goes quickly, there is great progress, and everyone loves what they see. But in the second month, things start to slow down — so, Prashad adds more resources to the project to compensate. But by the third month, there are real problems and it looks like the project will be late. Prashad adds even more resources. Now the team is almost double the original size. He adds a lot more quality assurance and testing support for the team, too, because a lot of problems are cropping up. The team cranks away, and they finish the project in the fifth month, and claim “success” because they almost hit the deadline (it was, after all, just an “estimate“).

But what about all those additional resources? Is it really success if the project cost twice as much as originally estimated? The problem is, that cost was never formally stated. It was never tracked as a metric, so the fact that the project went horribly over budget is quietly swept under the rug — at least this time. There are plenty of cases where the budget isn’t there, or the resources aren’t there, or the product just can’t ship late.

So, if so many projects are missing their mark, what’s causing the problem?

The fallacy of so called Agile methods

According to studies conducted by KPMG, as much as 70% of projects fail to meet their goals. In this case, “goals” mean quality, schedule, and function (or a combination of those). Clearly, being able to accurately estimate a project’s delivery date is important. Without knowing when a project is done, you can’t predict cost, plan business operations, or dovetail releases with marketing, training, and customer service.

Agile methods like Extreme Programming and Scrum make promises that, in my opinion, they can’t keep. For well over a decade we’ve seen an increasing trend in project failures, and a large number of those failures are the result of “unending projects.” Projects that go on and on, continuing to deliver improvement but slowly creeping over budget and never reaching an end state. Part of the problem is the lack of formal estimation and metrics.

Both Scrum and Extreme Programming dodge the entire issue of project life cycle estimation. They focus on the near term, providing estimates for the next one or two sprints. This works great if you don’t have budget or time constraints, but in the real world that’s rarely the case.

Burndown just doesn’t work

Most Agile methods don’t explicitly define how you estimate progress, but the most common method is burndown — the measurement of completed effort against the planned sprint goals. This is fine for a quick-and-dirty project but as a strategy it utterly fails to pinpoint problems with budget and timeline. For anything larger than a few months effort, it doesn’t do the job.

And the problem is, few of today’s engineers seem to be getting the formal education and training needed to use proper estimation methods.

There are better solutions than burndown

Earned Value Management, or EVM, is nearing it’s 40th year of practice. Throughout this 40 year history, EVM has repeatedly evolved to meet new demands as technology and innovation made new leaps forward. It’s a proven method for measuring progress and it’s been proven time and again.

Of the dozen or so software engineers I spoke with about this article, none of them had even heard of EVM.

Earned Value Management, as well as a variation known as Performance Based Earned Value® (PBEV), are my favorite choices for estimating a project. The PBEV approach provides an incredibly robust method for measuring progress and staying on top of your project. It’s only marginally more difficult than other techniques of measurement. And most project managers are already capturing the metrics needed to make it work.

PBEV is an improvement over Earned Value Management Systems’ (EVMS) national standard. It supplements EVM with guidelines for the integration of project cost, schedule, and technical performance — thus created a comprehensive and highly accurate method for measuring true progress in a project. The key here is integration of effort with schedule and performance.

Had Prashad been using PBEV, he would have had a very different experience. The early estimates would have been more accurate, since PBEV estimates the entire project. It would have measured not only resources and cost, but also the actual performance — the rate at which work is being done. Had the project gone off track, Prashad would have known much more quickly, and would have had a more precise picture of how to correct the project’s course.

There will definitely be situations in which PBEV is not warranted, and a skilled project manager will need to know when to use other methods, and why. EVMS, for instance, addresses only the quantity of work completed, ignoring cost and schedule metrics. The implication here is that a quick burndown or EVMS-based evaluation of a project might look A-OK, when in fact the only reason it’s on track is because resources are being thrown at it — and costs are skyrocketing.

Burndown versus critical path thinking

Burndown is a very simple method for estimating work effort over a short term. It explicitly avoids timeline, cost and performance metrics. That’s fine for projects that are not constrained by time, budget, or resources. The problem is, burndown is used as a defacto standard too often, on the promise that using an Agile method will deliver a project faster or cheaper than its alternatives. I don’t disagree on this front. Agile methods generally are faster and cheaper — but the question is, faster and cheaper than what?

Most business need to be concerned with time, money, and staffing. Projects that have those constraints need to think about the critical path — the sum of all activities to reach the end of the project. Having a solid understanding of the fundamentals of critical path management is important to managing any project schedule. Depending on the nature of your project, you may be able to rely on casual effort estimates — or, you may be required to carefully identify, analyze, and attack critical paths to shorten your project lifecycle and stay within stringent guidelines. Without understanding the principles, and knowing where to turn for more information, neither is possible.

I’ll revisit the topic of PBEV in a future article and provide more depth into how it can be applied to a project. If you’re eager for more information, check out Performance-Based Earned Value®, Paul J. Solomon, Ralph R. Young, IEEE Computer Society, Wiley Interscience, 2007.

Solving cultural and logistic International project problems

Sometime in 2001, a New England firm that later became a client decided to outsource all of its software development to India. It seemed like an excellent idea at the time, as Indian intellectual property wage rates were roughly one-tenth of their U. S. counterparts. But the project went poorly: U.S.-based employees struggled to manage programmers located halfway around the world, and much of the work coming back from India didn’t meet the standards of quality expected by the U. S. firm. While the industry has improved, this is still a common problem today. How can a team located in a different culture, a different business environment, and surrounded by completely different ideas regarding acceptable customer service, adequately meet the quality demands of a foreign customer?

There’s a solution?

Before exploring a solution that solves the complex cultural and logistic issues of International projects, let’s take a quick look at the elements of a typical project. We can start by using a guide such as the Project Management Institute’s PMBOK®, or Project Management Body of Knowledge. The PMBOK quite effectively lays out much of the scope a project manager needs to be prepared to handle.

According to the PMBOK, every project has five phases in common:

  1. Initiating.
  2. Planning.
  3. Executing.
  4. Monitoring and Controlling.
  5. Closing.

During each of these phases, the project manager’s objective is to balance the competing constraints of scope, quality, schedule, budget, resources, and risk.

These constraints are, in and of themselves, often daunting. Add in the human element and often inevitable business politics, and projects can become difficult exercises in communication, motivation, and human psychology. In fact, the PMBOK spends a good bit of time discussing key areas where these factors play a major role. Stakeholder involvement, communication plans, getting an unbiased statement of work or progress, managing risks, and managing subcontracts — just to get the list started — are critical to achieving success on any project.

All of these factors combine to create a web of constraints that push and pull at the fabric of a project, often so much that the fabric doesn’t survive intact. For example, stakeholders may not have the project’s best interests at heart or may simply be uninterested in their day-to-day responsibilities. Budget constraints may require the project manager to make difficult decisions that affect the team, or the objectives of the project. Subcontracts are, by the very nature of business, first and foremost motivated by their own fiscal health and profit, not necessarily your best interests.

This is the landscape a project manager steps into on a daily basis. The larger an endeavor, the more significant these challenges become — even when the entire project is still in a single building.

International project problems… Solved

Now, expand the dynamics of the project to a global effort, involving International team members, foreign partners, and vendors that you seldom meet in a face to face setting. In fact, many global projects are “communications deprived,” due to geographic challenges. A global organization can often have project members spread across as many as 15 time zones. While advances in technology have led to tremendous strides in delivering reliable communication, teleconferencing or video conferencing a few times a week, in the early or late hours of day, doesn’t compare to frequent, in-person communication. Teams operate in a vacuum much of their day, making decisions they would otherwise not make on their own.

Think back to the New England based firm: All of these factors contributed to quality problems, as the team in India tried to deliver what they believed the client wanted, but failed. Lack of communication, cultural misunderstands, and business context that we take for granted was missing — and the project failed.

This is the vacuum into which Rational Scrum was created. Project management methodologies today don’t address the complex issues imposed by multicultural teams, working in widely distributed, International contexts. That’s what Rational Scrum is all about: Finding solutions for International project problems. Fuel for this blog comes from a few different sources, including my book Successfully Managing International Projects. I hope you’ll find the contents interesting!

For more information on Successfully Managing International Projects, sign up for our mailing list. You’ll get occasional, relevant updates and announcements as the publishing date grows near.

Managing risk in global projects

I was recently asked what are the most relevant, pressing risks that affect global project management. Many come to mind but one stands out immediately: One of the most significant risks we identify is a globally disparate (geographically separated) team. Teams working in separate regions face tremendous challenges that a co-located team doesn’t have to think about. This is exacerbated when outsourcing, where conflicts in language, time, culture, and business environment all affect the organization.

Organizations facing these environmental issues need to put a considerable investment into mitigating the associated risks. This is essentially why the “promise of outsourcing” has been toned down over the past decade: Gone is the illusion that you can get solid work for 25 cents on the dollar. “Real” outsourcing costs tend to range anywhere from 70 cents on the dollar to $1.20 on the dollar (yes, outsourcing can often lead to higher costs — but sometimes it’s not just about cost, but geographic presence, distribution, foreign market penetration, etc.)

Language barriers pose some of the most difficult issues to work around. Being unable to easily communicate means poor communication becomes a barrier to the entire team. This can lead to misunderstood requirements, misinterpretation of directions, even a complete disconnect on whether a team is in trouble or doing fine. Ideally, open communication, information radiators, and visibility are central to successful projects. Any barriers increase risk, and that means increasing efforts to compensate. Closely related to language barriers are cultural barriers. A pretty obvious example is the straightforward U.S. business culture in regard to the respectful and tradition-rich Japanese culture. Even seemingly similar cultures pose barriers; for example, East Indian cultures and U.S. cultures don’t easily connect until interpersonal barriers have time to break down.

Business environment and common bias also contributes to the risk of disparate teams, especially those separated by business culture. For example, consider a client developing a legal work product solution in the U.S. market while using East Indian resources. The lack of a common business foundation can easily lead to a complete disconnect regarding assumed business objectives (in other words, the legal system is very different in the U.S. versus India, which means a lack of common understanding regarding some pretty basic business goals).

All of these issues can be mitigated with appropriate practices. The necessary measures will vary from one project or organization to another — there are a lot of variables at work, and that means every project has to be treated uniquely. The common thread is communication. Breaking down these barriers by using process, technology and culture is critical. The disparate team needs to become one team, working as a unit — and that usually means a significant investment in tools, strong processes and team-building exercises. I strongly advocate rotating team members across the organization or project as one example. This helps across the board: It breaks down communication and culture barriers, helps team members get to know one another, lets distant teams experience local culture, and helps to build a collaborative “whole team.”

Doing away with ineffective, broken risk management

We all want to be Apple. We want to have their reputation, at any rate. A zealous customer base, fantastic products that seemingly flow out of design and into production without a hitch, and a virtually zero record of recalls or product delays.

But it’s the part about the customer that really grabs our attention. So the question is, how do they do it? If we put the right people in a room together will they just “get it,” and execute a flawless vision?

That’s likely a key part of it, at least in so far as it takes the right people to make the right decisions. But how do we execute our vision with such precision? And if we look at other successful companies, will we find some theme that’s in common with Apple? Absolutely. That common theme isn’t just one thing — But every single successful company has one common element in their strategy: A mechanism for avoiding undue risk.

Risk management has become mainstream. It’s no longer the domain of rocket scientists and actuaries. In fact, it’s become so mainstream that formal risk management practices are showing up everywhere we look. Most of the time, we’ll see the word Enterprise included in the definition — a way of letting us know “this is for the whole firm.” Enterprise Risk Management (ERM), Business Continuity Planning (BCP) and Governance and Risk Compliance (GRC) are just a few of the different names risk management flies its flag under.

Is More Attention A Good Thing?

But is all this sudden attention to risk management going in the right direction? To answer that, we need to look at the specifics of different risk management techniques.

For example, the Project Management Institute (PMI) and National Institute of Standards and Technology (NIST) have both put forward standards that devote significant space to the topic of risk management. The PMI standard of risk management (PMI-RMP®, or Risk Management Professional) includes some pretty extensive methods for identifying, quantifying and mitigating risk.

Much of the PMI-RMP standard can be considered a brief introduction to risk management. It doesn’t introduce quantitative analysis or provide any background of Judgement and Decision Making (JDM) theory. It does, however, provide a starting point, some kind of a baseline that we can use to at least make sure that our projects, programs and organizations are addressing risk management — at some level.

This is good, at least at first blush. But, unfortunately, when we dig deeper there could be a more subtle problem here: The practices advocated by PMI and NIST standards are, quite simply, apt to cause more harm than good.

Worse Than Nothing

There are decades of remarkable research in JDM and risk management theory. The research that has gone into this kind of theory has produced an invaluable treasure trove of tools, processes and techniques that we can leverage to learn how to accurately and effective assess risk across our organization.

This same research has also largely debunked “crackpot” risk management theory and poor decision making practices. For instance, Harvard Business Review led a study of over 200 popular management tools, like TQM, ERP and so on. Independent external reviews of the degree of implementation of each of these various tools was compared to stakeholder return on investment over a five year period. The resounding conclusion from this in-depth study, as reported by HBR, was that: “Our findings took us quite by surprise. Most of the management tools and techniques we studied had no direct causal relationship to superior business performance.”

But this shouldn’t be a surprise, at least not to anyone familiar with formal risk management and JDM theory. In research conducted over many decades, such as that of Brunswik, Kahneman, Hubbard and others, most of these recently introduced management practices have been exposed as ineffective and often even harmful.

Consider, for example, the principle method for quantifying risk in the PMI standard is a matrix-based weighted scoring system. This system advocates highly subjective risk assessment practices, such as relying on risk assessment almost entirely from subject matter experts. Studies have shown that even well trained experts — let alone the people that often serve as experts on review boards — tend to provide highly inconsistent and spotty assessment results. One study by Hubbard tested a group of experts in their ability to assess risk across a portfolio of projects. Unbeknownst to the participants, two of the assessed projects were identical — and, hence, we should expect identical risk assessment of the two projects. But that’s not what the study shows: Participants only agreed with their own risk assessment 22% of the time. The rest of the time, risk assessment varied widely, sometimes as much as 35% by the same individual.

Fixing It

Of all the professions that practice risk management, actuaries are the only ones that can claim a real profession. Actuaries, much like accountants, doctors and scientists, must demonstrate their ability to assess risk using scientifically proven methods. And, like other formal professions, an actuary puts her license on the line when certifying a Statement of Actuarial Opinion. As with doctors and lawyers, if she loses her license she can’t just get another job next door. The industry of risk managers, modelers and assessors outside of the insurance industry would be greatly served by this level of professional standards.

Likewise, organizations such as PMI and NIST should stop promulgating what amounts to crackpot risk management practices. Decades of extensive study have shown that the core principles of risk management integrated into the PMI and NIST standards simply do not work. Worse, in many cases these practices actually cause more harm than good. Scoring methods should be disposed of. Instead, standards should rely on existing bodies of proven risk management and JDM practices.

But in the meantime, attaining a greater awareness of the risks associated with bad risk management practice is our responsibility. Understanding what to look for in risk management, and consulting trained professionals that can employ statistical risk methods is a good starting point. At the very least, firms should consult with formally trained professionals — and look for empirical, statistics-based methods. Anyone proposing a weighted scoring system should be shown the door!

If you would like to learn more about risk management theory and practical methods of assessing and avoiding risk, see Hyrax International’s seminars on these topics. Attendees are welcome at public presentations. If you are interested in hosting a presentation at your firm, contact Hyrax International directly. Introductory seminars are offered at no cost.