Fat-tailed distribution of project risk
This weekend, I'm diving into the book "How Big Things Get Done". It explores the concept of a fat-tailed distribution in project outcomes. After studying data from projects across various industries over many years, the authors were shocked by the vast differences in outcomes. Most projects don’t accomplish their desired outcomes on time and within budget. Unlike events that follow a normal distribution, where one can easily account for variance, you can’t manage project success by adding buffers. This is because projects often intertwine with complex systems, such as human interactions, political dynamics, and environmental factors. As a result, their outcomes exhibit a fat-tailed distribution.
If you've read Taleb's books, you've encountered the concept of fat-tailed distribution. Taleb highlights how we often underestimate the likelihood of “rare” events. Yet, with fat-tailed distributions, these “rare” events become almost inevitable given a long enough time.
It’s important to iterate in increments of “smaller projects” by capping the time investment. Various principles in "Shape Up" help to effectively manage the challenges and uncertainties of real-world projects. This is done through:
Setting an appetite, where we explicitly cap the risk and prevent runaway projects
Shaping, where the team tries to uncover risks and uncertainties. They then make tradeoffs and find a solution within the appetite.
Hill charts (uphill/downhill work) help the team manage risk, tradeoffs, and interdependence as early as possible vs. linearly working on and completing “tasks.”