Optimism Bias and The Psychology of Risk Mitigation

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Remember, Q (standing for Quartermaster) the gadget man who gave James Bond different weapons and other spy gear for his missions? Here is a snippet from one of their conversations in “The World Is Not Enough”:

Q: “I’ve always tried to teach you two things: First, never let them see you bleed;”

Bond: “And second?

Q: “Always have an escape plan”

In fact, Q briefs Bond on risk mitigation and response strategies and offers some risk mitigation tools in the form of his gadgets. However, as is often the case in real life, Bond does not really pay any attention to Q and has less respect for Q’s equipment (it is never returned in pristine shape). This is an interesting phenomenon: in most cases people can identify risks, but don’t put much effort into managing them. This is a common situation in project management: project managers create elaborate risk registers, but their efforts mostly end there. They don’t use it for its most important function: to prioritize and manage the risks, Why is this the norm?

The reason lies in human psychology, particularly in what is called the Optimism Bias. According to optimism bias, people tend to believe that they are less exposed to risk than others. For example, smokers believe that they are less likely to suffer or die from smoke related diseases than other smokers. So, people know about their risks, but don’t want to do anything about them because they think that it will not happen with them. James Bond suffers from the same shortcoming, probably because he had never paid much attention to Q’s advice and instructions and was still well and alive after dozens of movies. A real James Bond would probably have died from any combination of gunshots, bombs, alcoholism, and sexually transmitted diseases before he completed his first mission.

Optimism bias is quite common in project management. For example, a company decides to launch a new line of products. The main risk is that market acceptance. Everybody, from the CEO to assembly line workers are aware this is a risk. However, the company management often does not have any mitigation plans to minimize this outcome. For example, they could ensure that the product can be easily updated in case the market does not accept it. In 2005, the toy manufacturer Lego produced an action figure called Galidore based on a TV series. It was not well accepted by the market, which was one of the primary reasons of the significant decline in Lego revenue in the years 2002-2007. The TV series was cancelled after 26 half-hour episodes. The issue is that the design, manufacture, and introduction of products to the market is a long and expensive process. If mitigation plans for the risks related to product sales are not in place, this could lead to major revenue problems.

So, key point of all of this is that don’t let you innate optimism get in the way project success. Just because, you don’t think that they could happen to you, doesn’t mean that they won’t. Good risk planning, including mitigations will increase the chance that you can deliver your projects successfully.