Waltzing With Bears - Tom DeMarco and Timothy Lister

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[amazonsearch]Waltzing With Bears - Managing Risk on Software Projects[/amazonsearch]

 

While I think this book is excellent in its stated goal of managing risk on software projects, I found it invaluable as a lesson on managing risk in general, which can be easily applied to investing.

 

Consider the following paraphrased anecdote with which the book opens:

 

A man running a passenger service on his old boat takes on passengers for a trip across the sea. Just before departing, he realizes that he did not inspect the integrity of his boat that morning. Thinking back to the many safe voyages that the boat has made in the past, the man convinces himself to believe that this trip will not be any different and the passengers will arrive safely at their destination. One of two possible outcomes can occur. The old boat could have been in bad shape and that trip was to be its last. The boat sinks and everyone in it drowns. Did the man have a right to believe that his boat would make the trip safely? Of course not! We can easily say that he is responsible for the deaths of all the passengers. Consider the other case where the boat survives the trip despite its bad shape. Is the man any less guilty? Even if the boat did not sink and the passengers did not drown, the man still did not inspect his ship. He just didn't get caught this time. Only if the man did due diligence and inspected the ship before departing could he then rightly believe that his ship was sound.

 

This anecdote comes from William Clifford's "The Ethics of Belief" and is used in "Waltzing With Bears" as a precursor to the fact that risk management is essential in software projects. Conveniently, this philosophy can also apply to investing. The book lays out a risk management framework in which participants in a project constantly enumerate possible undesirable outcomes, their probability of occurring, and what can be done to mitigate those risks. It is an interesting approach that I plan on applying both in my career as a software developer and in my hobby as a value investor. I'd recommend this book to anyone on this forum wishing to better document their risk management efforts or to begin risk management in the first place.