Risk Management and Complexity Theory

Risk Management and Complexity Theory - The Human Dimension of Risk [P072]

The outcome of projects is always uncertain and risk management has become a ‘hot topic’ in recent years. However, despite all of the interest, risk management remains one of the least appreciated aspects of modern management.

Whilst arguably the key competence (or competitive advantage) of every organisation is its ability to effectively manage the risks inherent in its environment; most organisations are excessively risk averse, and in their attempts to avoid ‘all risk’ expose themselves to more adverse outcomes than if they actively embraced and managed risk. No client can avoid the ultimate risks associated with its project such as the liquidation of its prime contractor; these major events inevitably impact the client and by attempting to quarantine itself from ‘all risk’, the client simply passes the benefit of any favourable outcomes to its contractor.

Within this framework, ‘Complexity Theory’ helps us understand the social behaviours of teams and networks of people involved in and around a project. This paper briefly examines the development of ‘Complexity Theory’ from its origins in Chaos Theory to the ideas of ‘Complex Responsive Processes of Relating’ (CRPR) and seek to link the ideas within Complexity Theory to the practice of risk management so as to develop an understanding of risk and uncertainty from the viewpoint of complexity theory.

The paper then describes the key aspects of risk management from the human perspective, with a view to optimising the overall risk management for a project and its host organisation. Particular focus is on the risk attitudes and competencies required at each level of management to optimise risk.

The paper concludes by developing a range of practical suggestions for improving the effectiveness of risk management practice within projects based on an understanding of ‘complexity theory’ applied to the project environment.

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