Risk Managers as part of Project teams – Moral Hazard?

A great deal has been written about Risk Managers being sacked for advising against their senior manager directions (HBoS Risk Manager sacking by his Board, etc). But most Risk Managers employed by organisations work in project teams and involved in all stages of risk management – identification, analysis and mitigation. Of the three, identification and analysis – in my opinion- are most likely to be subject to Moral Hazard.

Project Managers can withhold information from Risk Managers (if the Risk Manager does not dance to the tune) while Risk Managers are subject to a ’emotional with holding’ given that they will need to work with their project risk colleagues on a daily basis and showcasing a high risk exposure will most certainly reflect poorly on project manager performance.

In my experiences as a Risk Manager, I have offered professional advise based on Quantitive techniques (QSRA using PertMaster, QCRA using @Risk) and previous experiences. However in most cases, the project team:

  1. requested to change risk information (probability, uncertainties, risk impacts, etc) based on modelling results, or,
  2. ignored my risk modelling results and went ahead with the job, only to find later that I was right!! (another matter that Senior Managers copped out by saying they never got the email!!) or,
  3. condition their risk inputs to a very optimistic picture, to get a ‘formal go ahead’.

This is not limited to Project Risk Management either. In the financial services industry, the credit rating agencies (Standard & Poors, Moody’s) were paid to assess the risk while another division advised on steps to improve credit rating. This has significant parallels with the Project Risk industry. Let me explain:

Risk Manager asseses the project confidence of completing planned works within a set deadline and almost immediately, suggests ways of improving the ‘score’. Practical steps such as using macros to model contingency plans to model realistic situations were perceived as too long with statements such as ‘Ravi – give me a P90 value please as I am under pressure and unless you agree, I cannot undertake the works’. Of late, I actually had to write an email to the Director indicating this, and suggesting that risk analysis is being subject to Moral Hazard in less than correct ways – one Commercial Manager even disallowed me from booking time to his project and got a new Risk Manager (a consultant who again has a Moral hazard to give information that managers want to hear as otherwise his day rate of £500 is lost!!).

Even permanent staff are subject to Moral Hazard. Often suggesting areas where risk profile can increase by pointing at relevant ‘alternate modelling techniques’. What are your experiences?

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Posted on April 21, 2010, in PertMaster, Risk & Culture and tagged , , , . Bookmark the permalink. Leave a comment.

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