Poker Risk Management
- This is where management of your tournament stack becomes essential. The raise is a declaration of power in poker. It is the declaration of war against the table by saying my hand is better than.
- She also learned about the gender imbalance in the world of competitive poker, and how women are consistently underestimated by men. She learned about how players manage risk, and that poker is.
Time to read: 7 minutes (11 if you watch the video's also)
Today’s understanding of risk management emerged from the work on probability theory of three 17th century Frenchmen: Blaise Pascal, Pierre de Fermat and the Chevalier de Mere. Then two Brits, John Graunt and Edmund Halley, developed the first actuarial tables, and a legitimate domain of study was born.
Often I hear people say that Scrum does not take care of risk: there is no risk log, risk is not on the agenda of the Sprint Review or Retrospective as a standard agenda-item. The Development Teams need to be accountable for the quality of the product and how it's made. That's a risk right there! If there is not one person accountable for quality, being on time, within budget, building the right thing... How is risk managed in Scrum?
I'll break it to you right away. Scrum is all about risk management. Ken Schwaber talks a little bit about it in this short video:
Risk is personal
First let's think about what risk actually means. According to the Oxford English Dictionary:
(Exposure to) the possibility of loss, injury, or other adverse or unwelcome circumstance; a chance or situation involving such a possibility.
That's a very broad definition. Reading it like this makes it also subject to personal interpretation. And I think we all look at risk a little bit different. Risk has also a lot to do with our own personal involvement. If someone I don't know will cross two buildings on just a rope without safety net, that's very risky for that person, but not for me.
That also relates to the work that we do. For some the same project or product outcome can hold far more risk for one than for others in the same project that we do.
Different types of risks
Within work related environments, we usually talk about:
- Financial risk - can we pay for it?
- Business risk - will it be used? Does it solve the problem?
- Technical risk - can it be made/build? (often in relation with finance, when a product becomes possible to build, but too expensive).
Controlling risk with Scrum
Scrum is a very good way of controlling risk in a number of ways. I'll elaborate on these different types of risk in the context of using Scrum.
Financial risk
When we are going to build a new product or change an existing one, we would like to know the costs of or change or innovation. Unfortunately, the complexity of the development of these products causes for great uncertainty and thus makes it difficult to estimate what the costs of a project will be upfront.
This often is a difficult subject for many, because the way we run projects (not using Scrum) is often first establishing scope, finances and resources (what we now call people). With Scrum, some say we skip that phase, but actually, we don't. We build it up empirically, because that's the best way to control the future in complex environments.
However, we are not giving anybody a blank cheque. We define clear roles and responsibilities.
We establish the role of the Product Owner. He or she is in control of the budget and planning of the product.
We establish a self-organizing Development Team of cross-functional professionals who can get the job done, from start to finish.
We ask a Scrum Master to facilitate this Scrum Team to encourage empirical process control and coaches this team to be a little bit better every day.
Then we ask the team how long it will take them to validate the first wishes into a concrete result. The shorter the better, because that saves money, that might otherwise be wasted on building the wrong thing.
Often I advise sponsors of teams like this in an organization to fund just a couple of Sprints at first and look at the results after every Sprint. Have a conversation with the Product Owner and Development Team about the results and the return on investment. This means the costs are pretty predictable. It's the costs of the team + out of pocket expenses for these Sprints.
The sooner the first release goes out to the users, the sooner the financial risk decreases!
Business risk
Business risk is the risk of people (users) not actually using your product, thus not solving the problem that the product needed to fix in the first place. This happens all the time. And not because our teams are dumb or stubborn, but mostly because a customer really knows what he needs the moment he can actually use the product. Everything before that is useful (Product Backlog refinement, requirements engineering, talking to users, doing surveys etc.) but does not take away the risk of people not actually using your product. Look at this short clip to illustrate:
Within Scrum, the Product Owner's role is to keep in close contact with stakeholders and the Development Team, so the right thing will be build. Reviewing the releasable increment together with those stakeholders every Sprint and (to speak from Eric Ries perspective) pivot or persevere from there.
The Product Owner is not a business stakeholder, it's not an analyst. It's the business representative in the team to manage and monitor that business risk, to create the best possible outcome.
When I started using Scrum, I remember this was one of the key elements that I liked so much: there is no more 'us and them', we work collectively to solve business problems.
Technical risk
Technical risk actually can be sub-divided into two categories:
- Can it be build with a good ROI?
- Can we maintain the product during and afterwards?
These are important questions to keep asking yourself along the product development effort. Everyday, decisions need to be made by the Development Team if the effort that is put into a certain feature is worth the value to the Product Owner. So communication is key here.
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And in second part: being able to maintain the product. Always keep a scout's view on technical issues. What I mean by that is: whenever you encounter bad technical quality, make it (at least a little bit) better.
Now, again, 'done' comes into play here. Within Scrum, defining what is meant by 'done' is important to be in control of technical risk. This can enhance the quality and maintainability of the overall product.
Technical skills, tools and improvements can be adopted in a good definition of done. The right testing, validation, documentation etc. can reduce the technical risk.
To conclude: the best way to reduce risk in general is: build potentially releasable increments for users.
I remember someone on LinkedIn mention:
The day we started to deliver, people stopt asking about our velocity.
Scrum values
I started out this article with the definition of risk and how subjective it can be. The Scrum values are extremely important to make sure that overall risk is transparant and dealt with at the right time, by the right person, with proportional effort.
Take a couple of minutes to look at these values in respect to risk. What's the effect of these values on risk?
Complex environments are full of risks. You can fear them, analyze them, calculate them. Or you could build the product, inspect and adapt and deliver a done increment each Sprint.
People gamble all the time, but we don’t think of it that way.
We think we are making decisions, not gambling — and often don’t see it as taking risk either. But we are.
The key is whether we are making what we consider a “sure bet,” where we believe the outcomes of our decisions are more likely than not to be (net) favorable, considering both the upside and downside — especially compared to the alternatives.
Related Article: Effective Risk Management Starts With Better Decision-Making
Quality Information Informs Quality Decisions
For example, when I quit my job with Coopers & Lybrand in the UK and decided to move to the US, I was gambling.
- I had no assurance I would get a job in the US (although I was fairly confident), and certainly had no assurance it would be a job I would want. As it happened, while I wanted to move back to Atlanta, the job I was offered was in Los Angeles.
- I didn’t think I had a future in my current position. As it happened, I had been tagged as potential partner material.
- I was also gambling that I would enjoy life in the US. I had spent nine months in the US and had made many friends, but would I be happy in this foreign country? Would I miss the safety of being close to my family in England?
Poker Risk Management Definition
I made what I considered to be an intelligent and informed decision. As it happened, my assessment of the facts was partially incorrect (I probably did have a future if I had stayed), but it turned out well for me.Poker Risk Management
Every time after that, when I took a new job I was gambling.
- In most cases, my old job was disappearing due to downsizing or an acquisition. But in some cases, I had been offered a position with the acquiring company. My assessment was it was better to leave than stay.
- While I had done as much research as I could on my new company, I didn’t have certainty about its prospects or the people I would work with. In one case, nothing was as it appeared during the hiring process — but that’s another story.
When we gamble, whether we call it making a decision or taking a risk, it is crucial that we try to do so intelligently and with all the quality information we can obtain.
When I was in college I played poker with a lot of success. But I didn’t consider it gambling as I knew I was one of only two players at the table who knew what they were doing. I was taking risk, but my assessment was I was far more likely to win than lose and my potential loss was smaller than my potential gain.
Quality information informs and enables quality decisions.
The military planners deciding whether to send troops to rescue hostages in Iran (under Carter) or to capture Al Qaeda leaders (under Obama), would have had to assess:
- The likelihood of loss of personnel and equipment. There was a range of possible levels of loss, from the embarrassment of a failed mission to the loss of the whole team. Each level of loss had its own likelihood.
- The likelihood of success. That also was a range, from partial (such as rescuing a few hostages) to full (bringing them all home). Each level of success had its own likelihood.
- The possibility that their assessments of loss and success were incorrect.
- Whether the likelihood of success warranted taking the risk of failure. That was the gamble they made.
- Were they gambling when they decided to go ahead? There was no certainty about either the potential and likelihood of loss or the potential and likelihood of success.
Related Article: Transforming Risk Management in 2019 and Beyond
Implications for Risk Practitioners
What does this mean for the risk practitioner?
Their job is to help the decision-makers make informed decisions and take risks with the knowledge that they are more likely to succeed than fail. After all, it is only by taking risks that any organization can achieve its objectives and succeed.
The risk practitioner has the ability to help decision makers assess the extent and likelihood of a range or potential outcomes, both potential losses and gains. The risk practitioner can improve the likelihood of quality decisions and therefore of success.
Is it gambling when you have what you believe to be reliable information and are making an intelligent decision?
It’s certainly gambling when decisions are made in haste without reliable information on the extent and likelihood of what might happen.
I welcome your thoughts.