The Anti-Fragile Programme - managing change that gains from crisis.

Let me throw a buzz-word at you – ‘Black Swan’. Its modern meaning is of an unforeseen event that has an extreme impact and is not simply hard to predict but fundamentally unpredictable.  It was coined by anti-establishment economist and intellectual Nicholas Naseem Taleb to explain why the fragility of the global financial system and a culture of poorly structured sub-prime mortgages in the US cascaded into a global crisis involving the fall of major banks and the collapse of European economies - amongst other things.

Fragile complexity

In a vastly oversimplified nutshell, black swans will occur in ‘complex domains characterized by the following: there is a great degree of interdependence between its elements…. As a result of this interdependence, mechanisms are subjected to positive, reinforcing feedback loops which cause “fat tails”’ (Taleb, 2010, pg. 358) i.e. an impact far beyond what could have been predicted. This is particularly damaging where the system’s risk management approach assess risks individually as opposed to as part of a complex web of cause and effect or, even worse, underplays the risk based on a limited and overly-optimistic view of the past. Think hedge-funds that assumed a financial crisis of the magnitude we’ve just experienced could only happen once a millennium based on a sample of data that didn’t include the Great Depression….

Another target for Taleb’s sharp pen is over-optimised systems where sensible contingency is stripped-out in the name of cost-saving. He argues that if the risk-model is as fundamentally unreliable as he believes then contingency estimates will be hopelessly under-estimated. Here Taleb is strongly supported by the work of Professor Bent Flyvbjerg who points out the consistent underestimation of cost on mega-projects based on, amongst other things, weak estimation of risk.

Taleb calls these over-optimised, highly-interdependent systems with positive feedback loops and simplistic, linear prediction/risk reduction mechanisms ‘fragile’ – small shocks and damage can rapidly spread to ‘shatter’ the system. Taleb asserts that most of the institutions and systems we have built are fundamentally fragile and at risk of black swans. His challenge to us is how we build systems and institutions that are not just resilient but positively ‘anti-fragile’. In other words can we build an organisation that is actively strengthened by small shocks and the complexity of the world around us?

 Complex fragility

If you’ve read this far and, like P2 Consulting, are involved in major programmes I expect you’re experiencing a sinking feeling as you realise that major programmes are the very definition of a fragile system:

• They are large, highly-complex and interdependent environments – both in terms of complex stakeholder and build requirements.
• Small shocks can lead to a cascade of crisis as resources are redirected and dependencies start to turn red.
• Risk management is inevitably based on individual risk profiles rather than an intelligent understanding of risk interaction.
• A tight financial environment means the programme is ‘over-optimised’ without the level of contingency that best practice would recommend (and for more on this I’d urge you to read Professor Flyvbjerg’s excellent paper ‘From Nobel Prize to Project Management’ about poor-estimation and taking the independent outside-view).

Taleb would argue major programmes are fundamentally unplannable due to the preponderance of known-unknowns and unknown-unknowns. We wouldn’t go that far but there is a definite challenge for the change management community – how do we create the anti-fragile programme? A programme that is strengthened by the inevitable shocks and crises that will hit along the delivery journey rather than shattered into an undeliverable business case, broken careers and uncomfortable conversations with the Board or Parliamentary Committee?

The Anti-Fragile Programme

To create the anti-fragile programme we would need to apply Taleb’s heurisms for anti-fragility:

• Small is beautiful: size – size creates complex dependencies which creates fertile ground for cascades and black swans. Break your programme down as much as is practical and ring-fence projects to decouple the dependencies as much as possible. This provides a ‘fire-break' of sorts and can prevent the cascade effect.
• Small is beautiful: time - extending the time of a programme can also create challenge. The longer a programme lasts the more time exists to derisk the internal environment but, counterintuitively, the greater the chance that the external environment will change - creating an unpredictable crisis. As was put to me once – the smaller the scale and time window the less chance a black swan will fly through it.
• Be realistic about risk – risks rarely occur in isolation and a risk heat-map or scoring system can hide more than it reveals. Mapping risk-interactions is difficult and rarely as simple as impact x likelihood = risk. Often your best defence is the experience of a tried and tested risk manager sitting in the central programme management office and trusting their gut.
• Promote contingency over optimization: “a patent side effect of mathematics is making people over-optimize and cut corners causing fragility” (Taleb 2012 pg.223). There is an entire literature on the weakness of ‘expert’ forecasters in estimating the contingency needs of major programmes. You will need your contingency – when crisis inevitably hits contingency is the shock-absorber that prevents it from spreading.
• Avoid na?ve interventionism – na?ve intervention is a clear destabilising effect, especially in systems susceptible to positive feedback loops. Something experienced programme managers know instinctively – waiting for more information is often the best strategy.

The above heurisms act to protect the programme against fragility – but to make a system truly anti-fragile one must apply the barbell principle.

What do you lift, bro?

The barbell principle, or more technically the bi-modal anti-fragility strategy, is so-called because on a graph of benefit to risk the drawn line looks like a barbell: with an emphasis on a large number of low risk, low reward options and a few high risk, high reward options – whilst minimising the deceptive middle-ground of moderate risk/reward. One is protected from negative black swans by the high number of low risk, low reward options whilst opening oneself up to the chance of a positive black swan that will pay out big.

Translated into programme manager speak the programme needs to maximise optionality by being made up of a wide range of small projects – the majority being low risk, low benefit with a small number of high risk, high benefit projects. As Taleb puts it “antifragility is a combination of aggressiveness with paranoia whilst avoiding the corruption of the middle”.

For me, the really interesting point about this is that it suggests the truly anti-fragile programme should be managed as a ‘portfolio’ of projects structured primarily around their risk/benefit profiles and with significantly more redundancy than our current optimised approach allows. Juxtapose this with our current concept of a programme as a closely-coupled set of projects all needing to land perfectly to create an end-state: the very definition of fragility.

So next time you consider your major programme ask yourself if you’ve built an anti-fragile organisation that gains from the complexity and crisis it operates within or a tightly-coupled monolith waiting to splinter as the stresses grow?

About P2 Consulting: 

If you’d like to talk more about protecting your major programme please visit www.p2consulting.com or get in touch with Adam or any of the P2 Consulting team here on Linkedin. You can also follow P2 Consulting on Linkedin here.  

P2 Consulting is the market leading Project & Programme Management Company. We work in partnership with our clients to turn their business ambitions into reality, bringing a unique blend of leading-edge thinking and hands-on delivery. We bring the drive, the passion and the courage to act leaving your business stronger, fitter and more profitable for having worked with us.

P2 Consulting was formed by a revolutionary team of entrepreneurial leaders and award winning consultants. Since our creation, our passion for delivering business success for our clients has shaped our vision, our company and every member of our P2 Consulting team. We are proud to have delivered some of the largest and most successful programmes in corporate history. 

Bibliography:

Flyvbjerg, Bent, (2006), “From Nobel Prize to Project Management: Getting Risks Right.” Project Management Journal, vol. 37, no. 3, Augus

Nassim, T. (2007). The black swan: the impact of the highly improbable, Second Edition. London and New York: Penguin.

Taleb, Nassim Nicholas, (2012), “Antifragile: How to Live in a World We Don’t Understand” (London: Allen Lane).