In Risk Management, there are three major categories of risk:

• Known knowns: these are risks that can be identified at the outset of a project and the outcome of which can be more or less reliably predicted. Rising labor and material costs are typical example of such risks.
• Known unknowns: the risks that can be identified, but the outcome of which may not be initially clear. For example, dealing with vendors is such a risk for vendors do not always deliver on what they promise.
• Unknown unknowns: risks that can’t be foreseen. Major accidents, natural and man-made cataclysms fall into this category. Remember Donald Rumsfeld’s famous: “Stuff happens?”

The scandalous cost overrun plaguing the organization of the 2014 Sochi Winter Olympic Games seems to warrant introducing yet another risk category: unknown knows, the risks that can’t be precisely identified due to their multiplicity, but whose gross negative impact on the project appears quite certain.

Let me elaborate.

When managing a project, project managers have to balance a number of competing project constraints, of which the most important are time (schedule), cost (budget) and scope/quality, a concept widely knows as the Triple Constraint Model. Should one of these factors change, at least one another will be affected too. For example, if the availability of funds becomes problematic, achieving planned deadlines would no more be possible. In addition, product quality may suffer. Conversely, slipping deadlines could be somewhat recovered by adding more resources, if the funds are available.

These simple relations don’t seem to work in Russia. Take, for example, one of the country’s recent megaprojects, the annual meeting of Asia-Pacific Economic Cooperation (APEC) countries held in Vladivostok, last September. The total price tag for the APEC summit was $20 billion, more than twice than had been originally budgeted. Yet, by the beginning of the summit, only a third of planned construction projects had been finished. Moreover, the quality of construction was extremely poor: a section of a $1 billion road collapsed three months in advance of the summit, and the summit’s hallmark, the $1 billion bridge to the Russian Island (a.k.a “bridge to nowhere”), is already showing construction deficiencies. The widespread corruption of local officials–a risk factor known to everyone in Russia, yet never officially recognized (an unknown known, so to speak)–resulted in the situation when even the inflated budget had failed to ensure elementary quality of the product and its timely delivery.

The lesson of the APEC summit might be very relevant in case of the Sochi Games. The estimated price tag for the Sochi event is expected at the level of $50 billion, about five times above the initial budget. This makes the allocation of significant additional funds–those beyond the sheer need to finish the job–very unlikely. At the same time, many construction projects are behind schedule. Given the fixed date of the opening ceremony, the organizers will be forced to complete the construction by this date, no matter what. A simple logic suggests that when the deadlines are non-negotiable and funds to speed up the work are non-available, there is only one component remaining to be sacrificed: quality. And quality means safety.

Instead on focusing on “readiness” of the Sochi sports facilities, the IOC should insist on extensive audits of their quality. This may help prevent the embarrassment of future technical malfunctions. Or worse.

Last September, in Vladivostok, Russia hosted the annual meeting of Asia-Pacific Economic Cooperation (APEC) countries. This July, in Kazan, Russia hosts the Summer Universiade. Next February, the Winter Olympic Games will take place in Sochi. In 2018, the final tournament of the World Soccer Cup will be played in 11 cities across the country. And in 2017, Russia is planning to organize the World Festival of Youth and Students.

Why such a passion for holding hugely expensive global forums?

An answer to this question emerges when you look at the costs of the events. The total price tag for the APEC summit was $20 billion, more than twice than had been originally budgeted. Already, construction deficiencies are evident for the hallmark of the summit, the $1 billion bridge to the Russian Island (a.k.a “bridge to nowhere”). The Winter Olympiad in Sochi is promising to become the most expensive sports event in the history of mankind: the final price tag is expected at the level of $50 billion, about five times above the initial budget. Naturally, there is no one among government officials capable of explaining what happened. The opening of a soccer stadium in St. Petersburg–to be used in 2018–has been already delayed by six years. It will eventually cost about $1.5 billion, six times more than planned.

There is nothing mysterious or coincidental about these cost overruns: this is a system the Kremlin has created to maintain the loyalty of regional elites. Moscow would obtain rights to hold a global event, allocate federal money for its organization–and there is always construction involved here–and send it to the regions. In the course of “appropriation” of the money, its significant part–as it’s customary in Russia–ends up in the pockets of local authorities. The very greatness of the chosen events justifies hefty budgets, and the lack of any real oversight ensures that these budgets are constantly corrected in the upward direction. As a result, money is plentiful to steal, so not only top regional bosses benefit from the event, but the bonanza is shared by many in the region. Characteristically, Moscow chooses the events in such a way that various regions get their share: APEC in the Far East, Universiade in Tatarstan, Olympic Games in the South, Soccer Cup in many cities of the Central Russia. This allows to spread money evenly helping keep a lid on a popular in the regions sentiment that Moscow “gets it all.”

The problem with this system is that it’s going out of control. Traditionally, kickbacks (“откаты”) represented 20-30% of the size of a government contract. In the past, this allowed all necessary constructions to be at least finished–on time or with small delays. However, in recent years, the ratio of kickbacks seems to have dramatically risen and now amounts to up to 60-70%, as some anecdotal evidence suggests. Naturally, there is simply not enough money to complete any construction on schedule with reasonable quality.

It seems that Russian officials have simply gone on a stealing binge. This turn of events would appear to be a direct consequence of the current situation in the country. First, Russian economy is still dangerously dependent on export of raw materials. Should commodity prices significantly decrease, the federal center will have no more money for megaprojects in the regions. So the regional elites are trying to grab everything from what is still available. Second, Russian political system keeps revolving around one single person, president Putin, who sets the rules and ultimately decides who gets what. No one knows what will happen after 2018. Who will be setting the rules? What these rules will be? Again, this uncertainty only fuels the après nous le déluge mentality.

The budget overruns for the APEC summit, Sochi Olympics and other “megaprojects” are not simply the cost of the projects gone awry. It’s a price tag–in real money–of the political system that Putin built.

(This piece originally appeared on Russia Beyond the Headlines)

Last week, the U.S. Senate confirmed John Forbes Kerry, a Democratic senator from Massachusetts (1985-2013) as the 68th United States Secretary of State. Kerry became the second U.S. senator in a row—after Hillary Clinton—to assume the top American diplomatic post. Both enjoyed impressive support from their Senate colleagues: the vote for Kerry was 94-3, an almost exact match to the 94-2 vote cast for Clinton four years ago. Characteristically, both Kerry and Clinton have had serious presidential ambitions: Kerry lost the 2004 general election to George W. Bush, whereas Clinton, defeated in the 2008 Democratic primaries by the current president Barack Obama, is still considered a formidable candidate for the Democrats in 2016.

Virtually all experts agree that Kerry’s appointment to lead the Department of State means the continuity of U.S. foreign policy during Obama’s second presidential term. Some differences in Kerry’s and Clinton’s approaches to world affairs are to be expected, though. Over the past couple of years, driven mainly by Clinton’s personal views—and, perhaps, future career considerations—American diplomacy has been increasingly focused on humanitarian issues, including the issue of human rights. This trend is unlikely to be sustained under Kerry, who seems to prefer addressing more traditional international problems, such as the Middle East peace process and Iran’s nuclear program.

Moscow was visibly pleased with Obama’s choice of Kerry as the next American counterpart to Russian Foreign Minister Sergey Lavrov. In Russia, Kerry is widely recognized as a proponent of positive U.S.-Russia relations; everyone remembers his spirited support for the New START nuclear arms reduction treaty back in the fall of 2010, when Kerry was chairman of the Senate Foreign Relations Committee. Additionally, it is anticipated that Kerry, who is always in control of his words, will refrain from repeating the questionable statements allowed by Clinton in the closing weeks of her secretaryship, including her description of Moscow’s efforts to promote greater economic integration in Eurasia as “a move to re-Sovietize the region.”

The new concept of the foreign policy of the Russian Federation, a document yet to be signed by Russian President Vladimir Putin, places Russia’s relations with the United States as only a relatively moderate foreign policy priority – third after political and economic integration in the post-Soviet space and relations with the European Union. But in reality, Russia’s foreign policy is perennially locked on what is going on in United States, an unhealthy tradition sometimes bordering on obsession.

Two factors can account for this bias. First, the Russian leadership is still psychologically refusing to accept the fact that Russia lost its status of one of the world’s two superpowers. One of the few things that in their mind keep supporting the notion of Russia’s “greatness” is the fact that together with the United States, Russia possesses about 90 percent of the world’s nuclear weapons. Moscow needs dialogue with Washington—especially at the highest levels–to remind to the rest of the world (and its domestic audience) that Russia is still an important actor on the world stage.

The second factor is the persona of Russian Foreign Minister Lavrov. Having spent the formative years of his diplomatic career in the United States as Russia’s ambassador to the United Nations, Lavrov tends to reduce the whole body of Russian foreign policy to a Moscow-Washington bilateral relationship, and so far has shown little desire to switch to the mundane task of integrating political and economic space in Russia’s “near abroad.” Interestingly, except for a few months in 2004, Lavrov has had to deal with two female U.S. Secretaries of State: first Condoleezza Rice, then Hillary Clinton. On occasions, his relations with the ladies were less than charming. In 2008, being reportedly offended by Rice’s criticism of Russia’s military actions in Georgia, Lavrov turned down her offers to meet to discuss a peace agreement between Moscow and Tbilisi. Last year, in a move that some Russian media interpreted as a show of strength, Lavrov refused to take Clinton’s calls on the ground that he was “busy.”

It remains to be seen which adjustments Lavrov will have to make to work with Kerry, given Kerry’s somewhat aristocratic demeanor and a clout of a decorated war veteran. (Lavrov, for his part, never served in the military). Of course, Russia may try to preserve the gender balance and replace Lavrov with a female minister of foreign affairs. To be sure, this will not solve all the problems U.S.-Russia relations have been facing as of late. On the other hand, why not to try something new?

In one of my recent posts, I wrote that the Russian Ministry of Foreign Affairs had prepared a new concept of the foreign policy of the Russian Federation. President Vladimir Putin was supposed to sign the document by the end of 2012. But he didn’t. As reported by the Kommersant daily, Putin wants the concept to be re-worked. Such a decision can easily be viewed as a non-confidence vote in the team of concept writers and, by implication, in their boss, the Foreign Minister Sergey Lavrov. Given that there are no obvious problems with Lavrov’s performance, the snub over the concept looks like Putin reprimanding Lavrov for publicly opposing the Duma adoption ban.

Even more intriguing sounds the explanation of Putin’s unwillingness to sign the concept in its current form: according to the Kommersant‘s sources in the presidential administration, Putin wants some messages in the document to be “toughened.” More specifically, Putin is seeking more aggressive language to condemn meddling in Russia’s domestic affairs.

Putin’s international views–and increasingly Russia’s foreign policy in general–are driven by his belief that “international relations are facing a growing number of challenges and threats,” a sentiment he expressed again a few days ago at a meeting with foreign ambassadors. Although I can certainly agree with Putin that the current events in the Middle East and Africa are troubling, I see absolutely no evidence that the number of challenges to Russia’s national security is “growing.”

What is growing is the size and scope of the Kremlin’s campaign to maintain control over the country by trumping up perceived threats to Russia’s sovereignty. Besides, as signs of erosion of public support for the regime–and him personally–accumulate, Putin seems to consider the propaganda of the “enemy at the gates” image as one of the most effective tools to keep in check the country’s elites.

Putin’s seeds definitely find a fertile ground. In a recent interview, a Duma deputy and member of the United Russia party’s General Council Evgeniy Fedorov went as far as to call Russia a “colony” of the United States and opined that the real power in the country belongs to the U.S. Department of State.

To those who would argue that Fedorov is no more than a middle-level bureaucrat in need of medication, I’d like to remind one of my favorite Russian proverbs: A fish rots from the head down.

It has become conventional wisdom that the Russian opposition has no plan. So much conventional it appears that recently this claim was repeated by the star of the French cinema and newly-minted Russian citizen Gérard Depardieu, someone who can’t be a priori suspected in knowing much about Russian politics. Yet the rising star of political analysis confidently told the Rossiya 24 TV Channel that ”[t]he opposition in Russia has no program–nothing at all.”

Conventional things are only useful for as long as they are periodically reassessed, and in this post, I want to reassess the conventional wisdom so eloquently articulated by monsieur Depardieu.

Let’s begin with the so-called systemic opposition, the one represented in the State Duma by the three minority parties: the Communist Party (KPRF), the Liberal Democratic Party (LDPR), and the Just Russia Party (SR). A brief examination of the party’s websites (something I can assist mon ami Depardieu with) reveals that all three include special sections named the Party Program: here is for KPRF, here is for the Liberal Democrats, and here is for Just Russia. Naturally, you can disagree with specific provisions in these programs–I, for one, disagree with the Communists’ assertion that capitalism leads Russia to the national catastrophe and the end of the Russian civilization–but you can’t say they don’t exist.

Political parties not represented in the Duma have their programs too. Here is a set of program documents of the liberal Yabloko Party; here is the program of the newly-registered Democratic Choice; here is the program of the People’s Freedom Party (PARNAS). The last document is actually quite elaborate: it includes 105 specific demands organized in three major “goals.” Again, you can argue with every single of them, but you can’t say they don’t exist. Incidentally, the federal law on political parties (Article 16) lists presentation of a party program as a mandatory requirement for the party’s registration. That means that whatever number of Russian political parties (among 55 registered as of today) can be called “the opposition,” ALL of them have programs.

Of course, we all understand that critics of the opposition primarily target its so-called non-systemic part, a.k.a. “the street opposition.” These guys, the argument goes, don’t have any program, any plan. Don’t they really? Here is a webpage (“The Documents”) created by Sergei Udaltsov‘s Left Front movement. The page includes such sections as “The Political Platform of the Left Front,” a draft of the program and even specific goals of the Front for 2012. True, cold winds of October 1917 blow from the pages of these documents, but we all remember what happened back then. The Bolsheviks had a program; moreover, they had a plan.

Finally, my account won’t be complete without mentioning the Opposition Coordination Council, a motley group of political activists united only in their rabid opposition to the Kremlin. Barely three-month-old (it was formed by a public on-line vote in October 2012) and composed of only 45 people, the Council has already come up not with one, but two program statements, a fact reflecting more the lack of ideological coherency than the extreme productivity of its members. Yet, this is hardly a reason to claim that the “street opposition” has produced “nothing at all.”

Constantly accusing the opposition in having no plan naturally assumes that such a plan has been clearly articulated by the powers that be. More specifically, that the ruling United Russia party has a detailed and up-to-date plan addressing Russia’s most pressing problems. Does it really? In fact, it doesn’t. Here is a six-page, completely empty-worded document posted to the party’s registration page at the Ministry of Justice’s website. Composed in December 2001 (when United Russia was created) and obviously serving as a placeholder to satisfy the registration requirements, this “program” isn’t even posted to United Russia’s official website. Far from having a program that is better than the opposition’s, United Russia is the only Russian political party that doesn’t have a working party program. As mon petit Gérard would say: no program–nothing at all.

The perils of lacking actionable party program has been debated within United Russia for years, but privately, many in the party leadership have argued that the party didn’t need any program at all for as long as it could associate itself with a mysterious ”