Tilda Publishing
Management
How To Manage Risks: VUCA framework
I’m not an adrenaline junkie. Extreme sports and gambling are activities I oppose. This might be why I am so interested in risk management. As a senior manager, mentor, and tutor, I have the opportunity to engage with many managers. So, I decided to conduct my own investigation into how risk management is approached within my target demographic's organizations. Here are two common responses: "We budget 30% for risk" and "Risk management is not possible in our project."
When it comes to risk management, these responses are more similar than they might seem. Simply adding a buffer to a project estimate is ineffective if it doesn’t directly address the project's budget, scope, and schedule constraints. In fact, even a manager who neglects risk management can sometimes achieve project success. However, both approaches resemble gambling more than they do strategic management.
When it comes to risk management, these responses are more similar than they might seem. Simply adding a buffer to a project estimate is ineffective if it doesn’t directly address the project's budget, scope, and schedule constraints. In fact, even a manager who neglects risk management can sometimes achieve project success. However, both approaches resemble gambling more than they do strategic management.
What’s Wrong with Risk Management?
From my research, I noticed that many executives overlook risk management because they find it confusing or abstract. When faced with a choice between urgent and important tasks, our brains prefer to tackle the simple and clear. By nature, we prioritize tasks that are straightforward and well-defined. So, how can a potential risk, often vague and hypothetical, compete with a tangible, immediate issue? It can, but only with preparation. For example, if you keep detailed records of all projects in your company, you can reuse information about unexpected issues and the actions taken to resolve them.
According to PMI historical data, this is one of the assets of the company that helps to stay competitive in the long run. This data can help to transform so-called "unknown-unknowns" into "known-unknowns." In other words, you can create a list of potential issues with a clearer action plan instead of reacting blindly to surprises.
There are many more small yet effective strategies that make revisiting your company’s approach to risk management worthwhile. A good starting point is the VUCA framework, which stands for volatility, uncertainty, complexity, and ambiguity. Let’s dive deeper into each of these elements and explore how they can refine your risk management approach.
According to PMI historical data, this is one of the assets of the company that helps to stay competitive in the long run. This data can help to transform so-called "unknown-unknowns" into "known-unknowns." In other words, you can create a list of potential issues with a clearer action plan instead of reacting blindly to surprises.
There are many more small yet effective strategies that make revisiting your company’s approach to risk management worthwhile. A good starting point is the VUCA framework, which stands for volatility, uncertainty, complexity, and ambiguity. Let’s dive deeper into each of these elements and explore how they can refine your risk management approach.
Volatility
Volatility measures how much the current state can fluctuate over time. It’s a term often associated with financial markets and stock price changes. Examples of amplified volatility, also known as black swans, include:
Since volatility cannot be predicted, fostering resilience within your company and preparing your team is essential. For example, involving multiple specialists in the technical aspects of a task ensures it can be completed on time, even if one specialist is unavailable.
Additionally, maintaining redundant communication channels reduces vulnerability to primary channel issues. While creating redundancy everywhere may not be feasible or could be costly, leveraging historical data allows you to adjust plans based on past project experiences.
- Severe infrastructure failures: a 6-hour outage of Meta infrastructure
- Massive employee illnesses: over two-thirds of hospitals reported staffing shortages during the pandemic
- Significant revenue drops: Apple was on the brink of bankruptcy, losing over $1 billion in fiscal year 1997
Since volatility cannot be predicted, fostering resilience within your company and preparing your team is essential. For example, involving multiple specialists in the technical aspects of a task ensures it can be completed on time, even if one specialist is unavailable.
Additionally, maintaining redundant communication channels reduces vulnerability to primary channel issues. While creating redundancy everywhere may not be feasible or could be costly, leveraging historical data allows you to adjust plans based on past project experiences.
Uncertainty
Uncertainty includes economic, geopolitical, or environmental changes, as well as shifts within your company and among competitors. Numerous change signals surround us, but without a clear strategy, they become noise. One example that has impacted nearly every company is user data protection laws, like the GDPR or CCPA.
To navigate uncertainty, focus on defining a clear information-gathering strategy. Determine which signals are crucial, such as official updates, and which should be ignored, like informal discussions on social media. Since it’s impossible to know everything, concentrate on the most vital information channels and assign responsibilities accordingly. With thousands of competitors, you can’t monitor them all, but you can keep an eye on the top ten. This focus helps prioritize what to maintain and what to sacrifice under uncertain circumstances.
To navigate uncertainty, focus on defining a clear information-gathering strategy. Determine which signals are crucial, such as official updates, and which should be ignored, like informal discussions on social media. Since it’s impossible to know everything, concentrate on the most vital information channels and assign responsibilities accordingly. With thousands of competitors, you can’t monitor them all, but you can keep an eye on the top ten. This focus helps prioritize what to maintain and what to sacrifice under uncertain circumstances.
Complexity
Complex situations involve predictable events that are challenging to manage due to numerous interactions. Examples include building a house, assembling an airplane, or developing an inventory management system. These projects involve many stakeholders, leading to coordination challenges and mismatched skill sets.
The best way to handle complexity is to simplify. Although this may seem obvious, it is the most effective strategy. If it’s unclear who is responsible for specific tasks, break the process into smaller tasks and define clear areas of responsibility. For large development estimates of crucial components, break them into smaller sections or set milestones to improve certainty. In my experience, the less defined a task or scope, the higher the estimate. Identifying areas with the highest estimates and examining their scope clarity is a good place to start.
The best way to handle complexity is to simplify. Although this may seem obvious, it is the most effective strategy. If it’s unclear who is responsible for specific tasks, break the process into smaller tasks and define clear areas of responsibility. For large development estimates of crucial components, break them into smaller sections or set milestones to improve certainty. In my experience, the less defined a task or scope, the higher the estimate. Identifying areas with the highest estimates and examining their scope clarity is a good place to start.
Ambiguity
Ambiguity is the most insidious type of uncertainty. I recognize two types of ambiguity:
To tackle ambiguity, set clear expectations. A quick prototype can clarify design ambiguities more effectively than lengthy discussions. Similarly, testing response rates experimentally can help reach a consensus on acceptable values more efficiently than debating them after project completion.
- Conceptual: Occurs when something seems so clear that further explanation appears unnecessary. Ambiguity thrives in terms like “easy design,” “user-friendly interface,” or “quick response.”
- Situational: Arises when multiple solutions exist for a single problem, and the outcome often depends on who is solving it. Ambiguity emerges when stakeholders highlight a problem and the need for a solution without specifying the expected outcome.
To tackle ambiguity, set clear expectations. A quick prototype can clarify design ambiguities more effectively than lengthy discussions. Similarly, testing response rates experimentally can help reach a consensus on acceptable values more efficiently than debating them after project completion.
Conclusion
If you’re wondering where to start with risk management, here’s my advice:
Understanding the nature of uncertainty makes it easier to move from abstract intentions to concrete actions.
- Begin with simple, straightforward practices like those mentioned above.
- Demonstrate the initial positive impact of these practices. People need to see that risk management can save time and resources.
- As you progress to more advanced techniques, ensure they are well understood by the team and their value is clear.
Understanding the nature of uncertainty makes it easier to move from abstract intentions to concrete actions.