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Project Manager : Project Manager June July 2012
20 Project Manager “By their nature, black swan events are not predictable so you can’t do planning around them. There’s often confusion between black swan events and top 10 risks or crisis events.” For instance, Plumridge says an oilrig exploding as a result of a terrorist attack is not a black swan event because it could have been predicted. But something like Hurricane Katrina or the collapse of Lehman Bros could be considered black swan events because they could not have been foreseen. “ With major capital projects, events that derail the project are usually not a black swan event because they are predictable. Things like a major supplier going out of business or the poaching of an entire business unit are not black swan events.” Paul Campbell, NSW Chapter President at AIPM, agrees that it is very difficult to plan for a black swan event. “In the normal course of business, most project sponsors won’t plan for or even consider one.” The exception, says Campbell, is the Federal Government, which is sometimes so risk adverse it can be difficult to get a project finalised and, occasionally, even off the ground. “The level of risk they try to build into projects makes it almost impossible for a project to be a success. I see so many large projects cancelled – even small events such as a software rework or a supplier glitch are considered black swan events,” he says. Chris Beale, functional manager, risk services, Sinclair Knight Merz , says that in his experience black swan events are very rare. “They are not common. Often what happens is a failure to communicate risk in a project, rather than a black swan event. “ You might find there are increased risks when you move into different geographies like Colombia or Brazil or West Africa. In order to mitigate risks in these areas you need to find people on the ground who understand what black swan events are in those areas,” he says. For instance, Sinclair Knight Merz has a number of people in its UK office who understand Africa well and could potentially identify black swan events there – but these same people would not be as comfortable identifying risks and black swans or running projects in somewhere like Indonesia, whereas the Australian team would feel well placed to be able to conduct projects and risk assessments there. Beale says the propensity for a black swan event often depends on the size of the project and the amount of pre-work that is done. For instance, so much planning and pre-work is done for a $3 billion project that risk assessment is often extremely thorough. But the same amount of risk work may not be done for a $200 million project, which means the likelihood of a black swan event affecting the project is much higher. • COvER STORy iT was predicTed buT underesTimaTed the GFc originated in the housing crisis that began in the united States and quickly spread to the rest of the world. niall Ferguson, british financial historian, noted the butterfly effect of the subprime mortgage market: “the subprime butterfly had flapped its wings and triggered a global hurricane”. after the binge of nInja loans came the purge and, by the beginning of 2007, more than 25 subprime lenders were filing for bankruptcy each month. the financial market could not solve the crisis. With lehamn brothers and aIG filing for bankruptcy, lending drying up and a slump in share prices, a financial crisis was inevitable. In the words of abc Economics correspondent Stephen long: “the biggest credit bubble in history burst”. as early as 2006, academics and commentators were predicting a financial crisis. dean baker, co- director at the centre for Economic and Policy research in the uSa, said in 2006 that: “Plunging housing investment will likely push the economy into recession”. nouriel roubini, a Professor at new york university noted that: “by itself, this house price slump is enough to trigger a uS recession”, and robert Shiller at yale university also said in 2006 that: “there is significant risk of a very bad period, with rising default and foreclosures, serious trouble in financial markets, and a possible recession sooner than most of us expected”. While the financial crisis was predicted, it is questionable whether the magnitude of the fall was anticipated. nout Wellink, chairman of the basel committee, told a 2009 audience: “no one foresaw the volume of the current avalanche”. the extent of the crisis was so severe, it caused some of the world’s largest financial institutions to collapse. the crisis ripped through global companies resulting in an economic crisis impacting many sectors. If the crisis was predicted, it was clearly underestimated. sTress TesTing is imporTanT in Terms of modelling projecT deliverables 20 Project Manager
Project Manager April May 2012
Project Manager Aug Sept 2012