quantmleap

I’ve had some interesting professional challenges lately, all of which can be traced back to issues associated with risk management. This is not surprising. In my view, the biggest challenge in any project is properly managing risks. It’s not that all other areas of project management are a walk in the park. It’s more around the fact that when it comes to identifying and managing risks some tend to be swayed by subjective arguments, wishful thinking and gut feel.

Most people subscribe to the reality of Murphy’s Law, namely that “if something can go wrong, it will”. Despite the common wisdom hidden in this simple, yet powerful, statement, some people tend to dismiss it on the grounds that statistically speaking our chances of hitting a bad run are equal to our chances of hitting a good run. So no reason for overwhelming concern as the Law of Averages will sort things out.

This notion is not quite correct, as demonstrated in an article published in the April 1997 edition of Scientific American under the heading of “The Science of Murphy’s Law”. The article’s conclusion is that “life’s little annoyances are not as random as they seem; the awful truth is that the universe is against you‘. So in that respect, when we say that “if something can go wrong, it will”, we actually mean it. Not that things will go wrong 100% of the time, but there are good chances that they will go wrong over 50% of the time.

Which, puts in question the Law of Averages. Well, things are not quite straightforward there either. Another Scientific American article (this time from April 1988, titled: “Repealing the Law of Averages”) tackles the common wisdom, according to which, when tossing a fair coin and maintaining a running count of how many times each side turns up, then after a large number of tossing in the air, we will get a relatively even number of heads and tails. This assertion is mathematically correct but only in VERY large numbers (can you count to infinite?). In real life situations, where the sample group is limited, the Law of Averages cannot be invoked, at least not as a serious planning tool.

To be continued…

Related posts:

1. Earned Value Management (EVM) for Dummies – Part 1
2. Earned Value Management (EVM) for Dummies – Part 2