Projects are launched to take advantage of opportunities but opportunities are associated with uncertainties which have risks attached. For the project to be viable, the expected value resulting from a favorable probability of gain must be higher than the consequences and probability of loss. Therefore, the risks associated with a project must receive careful examination in the context of the organization’s willingness to taking risks.
Failure to give proper recognition to risk management on a project can lead to unnecessary substantial losses or even a complete project failure. The status of risk on a project varies significantly during the course of the project life cycle.
Q. How do we measure risk without a simplified or a "user-friendly" risk management tool? Saving Changes...
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Tim CermakGlobal Manager Business Planning and PMO -- Connected Car & Customer Experience| General MotorsHighland, Mi, United States
Dr. Shamsuddin, My initial thought is to pursue leveraging the efficient frontier approach. I am by no means a mathematician, so you may want to research a bit to find the formulas that you can use. Taken from the investment industries and managing portfolios, it may provide you with some insight into managing risks without relying on tools.
Engineering Economics, or Engineering Economic Analysis, generally focuses on the cash flows related to a project. However, a textbook on this subject will also typically describe a number of ways to assess project risk - not in the conventional PMBOK sense, perhaps, but in the sense of project value.
These techniques may include sensitivity analysis, probability distribution (of expected outcomes), Joint probabilities, Range of estimates, Weighted average of estimates, Economic Decision Trees (which allow the evaluation of problems with sequential chance, decision and outcome nodes), Standard deviation of outcomes, Risk vs Return graphs, Simulations (use random sampling from the probability distribution of one or more variables to analyze outcomes over many iterations), and more. Probability and statistics, linear mathematics, decision analysis and other disciplines offer tools that can be used in varying ways in pursuit of Risk Management. Saving Changes...
