Reflection on “Controlling Chaos by Gale, April 2011”

The article “Controlling Chaos” discusses the low-probability, but high-risk events. It suggests that project managers can’t know what will go wrong all the time; however, they should have the flexibility to respond when anything goes wrong. It also argues that many firms rely on past data in order to predict the future events, and that is wrong, because simply the history does not repeat itself. The low-probability, but high-risk events are called Black-Swan because they are very rare, knowing that this term was used to describe things that are nonexistent, but now, they use it for rare events.

It is crucial for the project manager to identify the worst-case scenarios with regard to quality, cost, schedule, and scope, and understanding the possibility of each event. It is true that it can be very difficult to try successfully plan to events such as wars and environmental disasters; however, it is the project manager’s responsibility to decide what events to consider in that particular project. Additionally, the project manager should keep in mind in these events that if they don’t respond and act fast, negativity presented in the rumors and fears can spread out fast and become out of control, making the problem more difficult to solve, knowing that in many cases, the problem was found to be not the risk management tools used; however, how these tools were applied.

Some of the lessons learned from this article are that if we ask the project team to plan for a large number of scenarios, it will be overwhelming and so having a declining return on investment. In addition to that, no one can predict the magnitude of the risks that come with Black-Swan event; however, contingency planning can be the only solution.

From my personal experience, in the construction industry, many project managers protect themselves from the black-swan risk through the signed contracts with other subcontractors; they use different tools within that such as incentive or penalty clauses in the contract, fixed-price contracts, etc. The article discussed using contingency plans but without clearly identifying them, a contingency plan is a predefined action that the project teams will take if any identified risk event occurs. It is used usually with fallback plans which are developed for risks that have a high impact on meeting project objective; it starts working when attempts to reduce the risk are found to be not effective; some people called contingency plans of last resort. Personally, in my old company, we used to allocate funds and held it for known-unknowns and unknown-unknowns, which are called Contingency and Management reserves, respectively.