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Presentation. Trends and Advances in Risk Management

This presentation has been written by the guest editor Darren Dalcher. Download

The Use of Bayes and Causal Modelling in Decision Making, Uncertainty and Risk

The most sophisticated commonly used methods of risk assessment (used especially in the financial sector) involve building statistical models from historical data. Yet such approaches are inadequate when risks are rare or novel because there is insufficient relevant data. Less sophisticated commonly used methods of risk assessment, such as risk registers, make better use of expert judgement but fail to provide adequate quantification of risk. Neither the data-driven nor the risk register approaches are able to model dependencies between different risk factors. Causal probabilistic models (called Bayesian networks) that are based on Bayesian inference provide a potential solution to all of these problems. Such models can capture the complex interdependencies between risk factors and can effectively combine data with expert judgement. The resulting models provide rigorous risk quantification as well as genuine decision support for risk management. Download

Event Chain Methodology in Project Management

Risk management has become a critical component of project management processes. Quantitative schedule risk analysis methods enable project managers to assess how risks and uncertainties will affect project schedules and increase the effectiveness of their project planning. Event chain methodology is an uncertainty modeling and schedule network analysis technique that focuses on identifying and managing the events and event chains that affect projects. Event chain methodology improves the accuracy of project planning by simplifying the modeling and analysis of risks and uncertainties in the project schedules. As a result, it helps to mitigate the negative impact of cognitive and motivational biases related to project planning. Event chain methodology is currently used in many organizations as part of their project risk management process. Download

Revisiting Managing and Modelling of Project Risk Dynamics — A System Dynamics-based Framework

The fast changing environment and the complexity of projects has increased the exposure to risk. The PMBOK (Project Management Body of Knowledge) standard from the Project Management Institute (PMI) proposes a structured risk management process, integrated within the overall project management framework. However, unresolved difficulties call for further developments in the field. In projects, risks occur within a complex web of numerous interconnected causes and effects, which generate closed chains of feedback. Project risk dynamics are difficult to understand and control and hence not all types of tools and techniques are appropriate to address their systemic nature. As a proven approach to project management, System Dynamics (SD) provides this alternative view. A methodology to integrate the use of SD within the established project management process has been proposed by the author. In this paper, this is further extended to integrate the use of SD modelling within the PMBOK risk management process, providing a useful framework for the effective management project risk dynamics. Download

Towards a New Perspective: Balancing Risk, Safety and Danger

The management of risk has gradually emerged as a normal activity that is now a constituent part of many professions. The concept of risk has become so ubiquitous that we continually search for risk-based explanations of the world around us. Decisions and projects are often viewed through the lens of risk to determine progress, value and utility. But risk can have more than one face depending on the stance that we adopt. The article looks at the implications of adopting different positions regarding risk thereby opening a wider discussion about the links to danger and safety. In rethinking our position, we are able to appraise the different strategies that are available and reason about the need to adopt a more balanced position as an essential step towards developing a better informed perspective for managing risk and potential. Download

Managing Risk in Projects: What’s New?

Project Risk Management has continued to evolve into what many organisations consider to be a largely mature discipline. Given this evolution we can ask if there are still new ideas that need to be considered in the context of managing project risks. In this article we consider the state of project risk management and reflect on whether there is still a mismatch between project risk management theory and practice. We also look for gaps in the available practice and suggest some areas where further improvement may be needed, thereby offering insights into new approaches and perspectives. Download

Our Uncertain Future

Risk arises from uncertainty but it is difficult to express all types of uncertainty in terms of risks. Therefore managing uncertainty often requires an approach which differs from conventional risk management. A knowledge of the lifecycle of uncertainty (latency, trigger points, early warning signs, escalation into crisis) helps to inform the different strategies which can be used at different stages of the lifecycle. This paper identifies five tenets to help project teams deal more effectively with uncertainty, combining pragmatism (e.g. settle for containing uncertainty, don’t try to eliminate it completely), an emphasis on informed decision-making, and the need for projects to be structured in an agile fashion to increase their resilience in the face of uncertainty. Download

The application of the ‘New Sciences’ to Risk and Project Management

The type of problems that need to be solved in organizations are very variable in terms of their complexity ranging from ‘tame’ problems to ‘wicked messes’. We state that projects tend to have the characteristics of wicked messes where decision making gets confused by behavioural and dynamic complexities which coexist and interact. To address the situation we cannot continue to rely on sequential resolution processes, quantitative assessments and simple qualitative estimates. We propose instead to develop the concept of risk leadership which is intended to capture the activities and knowledge necessary for project managers to accommodate the disorder and unpredictability inherent in project environments through flexible practices leading to negotiated solutions. Download

Communicative Project Risk Management in IT Projects

Project management practitioners and scientists assume that risk management contributes to project success through better planning of time, money and requirements. However, current literature on the relation between risk management and IT project success provides hardly any evidence for this assumption. Nevertheless, risk management is used frequently on IT projects. Findings from new research provide evidence that individual risk management activities are able to contribute to project success through "communicative effects". Risk management triggers or stimulates action taking, it influences and synchronizes stakeholders’ perceptions and expectations and it shapes inter-stakeholder relationships. These effects contribute to the success of the project. Download

Decision-Making: A Dialogue between Project and Programme Environments

This paper proposes to revisit and examine the underlying thought processes which have led to our present state of DM knowledge at project and programme levels. The paper presents an overview of the Decision Making literature, observations and comments from practitioners and proposes a DM framework which may lead to empowering project and programme managers in the future. Download

Decisions in an Uncertain World: Strategic Project Risk Appraisal

This article is developed from the author’s book on strategic project risk appraisal and her special report on project management for the ICAEW. The book is based on over eight years of research in the area of risk and uncertainty in strategic decision making, including a project funded by CIMA and explores the strategic level risks encountered by managers involved in different types of project. The special report classifies these using the suits from a pack of cards. This article illustrates the key risks for three types of project including IT projects and suggests how managers can deal with these risks. It makes a link between strategic analysis, risk assessment and project management, offering a new approach to thinking about project risk management. Download

Selection of Project Alternatives while Considering Risks

The selection of projects consists in choosing the most suitable out of a portfolio of projects, or the most fitting alternative when there are constraints in regard to financing, commercial, environmental, technical, capacity, location, etc.. Unfortunately the selection process does not place the same importance on the various risks inherent in any project. It is possible however, to determine quantitative values of risk for each pair of alternative/threat in order to assess these risk constraints. Download

Project Governance

Having a governance structure in organizations provides a framework to guide managers in decision making and action taking and helps to alleviate the risk of conflicts and inconsistencies between the various means of achieving organizational goals such as processes and resources. This article introduces project governance, a major area of interest in organizations, which is intended to guide, direct and lead project work in a more successful setting. To that purpose a new three step governance model is presented and described. Download

Five Steps to Enterprise Risk Management

With the changing business environment brought on by events such as the global financial crisis, gone are the days of focussing only on operational and tactical risk management. Enterprise Risk Management (ERM), a framework for a business to assess its overall exposure to risk (both threats and opportunities), and hence its ability to make timely and well informed decisions, is now increasingly becoming the norm. Ratings agencies, such as Standard & Poors, are reinforcing this shift towards ERM by rating the effectiveness of a company’s ERM strategy as part of their overall credit assessment. This means that, aside from being best practice, not having an efficient ERM strategy in place will have detrimental effect on a company’s credit rating. Not only do large companies need to respond to this new focus, but also the public sector needs to demonstrate efficiency going forward, by ensuring ERM is embedded not only vertically but also horizontally across their organisations. This whitepaper provides help, in the form of five basic steps to implementing a simple and effective ERM solution. Download