The language we use in estimating project risk can be fraught. Understanding probability versus possibility and distinguishing causation from correlation is crucial for effective risk management in high-stakes project decision-making.
Senior project leaders and executive stakeholders are often confronted with complex decisions that demand a deep understanding of four critical concepts: possibility vs. probability, and the distinction between causation and correlation. Most will understand the challenges of high-risk projects.
“This project will probably fail…” or “It’s possible this plan won’t work”. While it sounds like different ways to say the same thing, it’s essential to stay clear on the difference between probability and possibility. They are not interchangeable terms.
Probability is the measure of the likelihood a specific event will occur, from it certainly will not occur to it certainly will occur, and everything in between. If you roll a dice, the probability of landing on any given number is 1/6 because there is one favourable outcome out of six possible outcomes.
Possibility refers to the state of being likely to happen or exist. There is no assignment to quantify the probability. For example, “it could rain tomorrow” is a statement of possibility, in that it states rain is in the realm of plausible outcomes.
In the business and project world, workshops and collaboration can easily become focused on possibilities, resources and time. Leaders can become devoted to planning for, solving for and mitigating possibilities that may never come to pass. Understanding the probability is a helpful way to prioritise and allocate resources to make sure that projects are prepared for the most likely and impactful issues.
But also remember, you can’t plan for everything. Right now on the Australian Eastern Seaboard, we are in El Nino (at least, for now). El Nino systems have a high probability of being hot and dry, but it’s still possible it can rain a lot.
How does this affect project management?
In project management, probability is used to assess the likelihood of risks and to make informed decisions based on these assessments. For example, a project might have a 30% probability of exceeding its budget, based on historical data and current project parameters. Probability offers an objective, data-driven perspective on the likelihood of various outcomes. It moves beyond subjective perceptions, providing a grounded and quantifiable approach to assessing project risks and determining strategies.
Failing to differentiate between possibility and probability can lead to poor risk management and decision-making. Overemphasising possibilities without considering their probabilities can result in excessive caution and the inefficient allocation of resources. Conversely, understanding probabilities allows project leaders to prioritise resources and focus on managing the most significant risks.
Don’t confuse correlation and causation
Correlation is the relationship between two variables, which can be positive or negative; non-existent to absolute. There is an almost perfect and positive correlation between children’s shoe size and their reading ability (up to a certain age), but if I buy my child bigger shoes will she read better? No, they are just related factors. As a child grows their reading level generally improves each year, and their feet get bigger.
Likewise, more drownings occur when people eat more ice cream; it’s because we both eat more ice cream and go swimming more in the warmer months. Ice cream doesn’t cause drowning.
Causation is a cause-and-effect relationship between two variables and often requires far more analysis and experimentation to prove than correlation only. Causation indicates that one thing leads to another. For example, we hear warnings that speeding kills on our roads. While speeding alone does not mean certain death, it certainly is a major contributing factor to road accidents and increases the likelihood of more significant injury or death. Saying “speed kills” is in fact a correlation. Traumatic injury from the accident would actually be the cause.
In life and in business and projects, it is almost impossible to find true causation. Most of the time, we rely on correlation analysis to observe how things are related and make conclusions to cause and effect. Looking at this with a critical lens, the goal is to find a correlation that has statistical significance, meaning it’s highly unlikely – less than 5% for example – that the correlation exists by chance.
It’s important to realise that not all correlations are automatically flawed (for example, bigger shoes generally does mean better reading ability). However, when you are conducting root cause analysis or developing change plans on your next project, it’s important knowledge to have in your back pocket, along with thoughtful consideration and good judgement.
For instance, a successful project may correlate to activity involving a lot of meetings, but this doesn’t mean that increasing meetings will necessarily lead to more successful outcomes.
Again, misinterpreting correlation as causation can lead to flawed decision-making. A project can be set-up to fail due to an incomplete understanding of requirements or deliver unintended and perhaps undesirable consequences. Ever experienced a project that delivered all the planned scope but the assumed benefits didn’t materialise? It’s likely that all contributing factors and variables that lead to results were not fully understood and planned for.
When important project decisions are made based on one or two correlations or beliefs, they can become a gross oversimplification that ignores other influential factors, leading to sub-optimal project outcomes.
Applying these concepts in high-risk environments
The ability to distinguish between possibility and probability, and understand the difference between correlation and causation, is essential for the success of high-risk projects. There are a few strategies sponsors and leaders can adopt, including:
- Embrace data-driven approaches: Use probability and statistical analysis as the basis for decision-making, rather than relying on intuition or perception.
- Prioritise risks based on probability: Focus on managing risks with the highest probability, allocating resources more effectively.
- Educate teams on correlation and causation: Ensure that all team members understand the distinction between these concepts to prevent misinterpretations.
- Continuous learning and adaptation: Adapt strategies based on evolving data and probabilities, rather than static assumptions or perceptions.
Senior project leaders and executive stakeholders must navigate these concepts carefully, relying on objective data and informed analysis to guide their decisions.
By doing so, they can mitigate risks more effectively, allocate resources efficiently, and increase the likelihood of achieving project objectives. Understanding these distinctions is not just an academic exercise; it is a practical necessity in the complex and high-stakes world of project management.
To find out more about how Quay Consulting can work with your project sponsors to mitigate risk within complex projects, please contact us.
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