On Using Monte Carlo Simulations for Project Risk Management

This chapter covers the essentials of using the Monte Carlo Simulation technique (MSC) for project schedule and cost risk analysis. It offers a description of the steps involved in performing a Monte Carlo simulation and provides the basic probability and statistical concepts that MSC is based on. Further, a simple practical spreadsheet example goes through the steps presented before to show how MCS can be used in practice to assess the cost and duration risk of a project and ultimately to enable decision makers to improve the quality of their judgments.

Financial Risk Management

The present paper intends to serve as an introduction into the financial risk management universe. It starts with the basic assumption that performance of an organization is inseparable from the risks it is facing. Any organization should have in place the necessary tools to identify, assess and constantly measure the risks it is exposed to. The paper focuses in defining the basic principles in creating a viable risk management framework that keeps track of three major categories of identified financial risks: market risk, credit risk and liquidity risk. Emphasis is put on the models to measure these types of risks but also on the tools an organization can use in order to reduce them. The second part of the paper is dedicated to recent events that shaped and shocked financial markets and illustrate the consequences faced by organizations when risks are not properly assessed and the risk management models in place are based on dangerously unrealistic notions.

Project Portfolio Risk Management

The overall performance of a project portfolios doesn't rely on the successful implementation of the largest or complex projects, but on how the entire group of projects is managed. In most cases organizations don't have sufficient funds to implement multiple projects in a certain time interval and turn to sponsors in order to implement them. Depending on each sponsors' conditions for funding the project the organization has to create a prioritization scheme for accelerating, delaying or abandoning certain projects. The chapter focuses on managing projects and project portfolios risk in regard to sponsor conditions for funding projects, how these conditions together with technical and contractual risks generate new risks that affect the performance of the portfolio. The chapter concludes with recommendations on how to mitigate risks by developing specific methodologies for managing both financial and technical risks.

Project Risk Management Process for Professionals

This chapter will provide an instantly applicable integrated project risk analysis method, which tracks the probabilities of the occurrences of harmful events perceived by the owners from the conceptual phase to the end of the project. The chapter follows a threefold structure. First, the paper provides a revised integrated project risk assessment framework that enhances conventional risk category-based methods. Second, the minimum requirements of the owners are clarified to attain the main goal of project risk assessment and to identify the harmful events jeopardizing this goal. Third, the widely known risk assessment procedures are revised, and a methodology for taking and selecting proper risks is provided. Finally, a new valuation approach to the monitoring phase is introduced, which is able to capture the current market value of the project based on the risk management and controlling system's data.

Coping Better with the Project´s Unknown Unknowns

It is the goal of management to overcome and delete uncertainty. Uncertainty is seen as an obstacle and threat for successful management. However projects are full of uncertainty. Successful project management therefore aims to overcome and ideally delete uncertainty as far as possible. In project management, uncertainty and risk are often used synonymously. Current project management methodology contains only technics how to manage risk in projects. The assessment of risks is based on the precondition of stable conditions and the idea that the influencing parameters are known, assessable and calculable. Since more than 2,000 years it is the aim of the Western cultures to master the nature by natural sciences and mathematics. In the last three centuries of Modern Philosophy the perspective developed that analytical scientific know how (episteme) and technical skills (techne) can master any kind of complexity and risk. The third traditional Aristotelian competence, the practical wisdom (phronesis) however was perceived as not acknowledgeable.

Using a Knowledge-Based Approach to Foster the Use of Risk Management in Construction

Knowledge is a key factor in carrying out and improving risk management in construction projects. Even so, it has been found that this management is done inadequately often mainly due to the lack of knowledge available for its execution. Thus, a knowledge-based system for addressing the problems of risk management in construction projects is proposed and described in this chapter. This is a web-based system that aims to supporting risk management for construction projects in an industry environment where risk management is not well valued yet. The system includes a tool that uses a maturity model for the assessment of risk management capabilities of contractors and owners, a module to propose improvements according to the existing gaps reported by the maturity evaluation module, and a knowledge base that supports a project's risk management and has the ability to acquire knowledge from experiences obtained during the implementation of different construction projects.

Easier Identification of Risks and Uncertainties with Project Risk Constellations

Although various tools are available to support the risk management process, difficulties are encountered when project risk management is carried out in practice. It occasionally seems difficult for project managers to grasp the whole complexity of a project, identify the essential risks and react accordingly. The aim of this chapter is to introduce a tool that can help managers identify project risks, learn about their dynamics within the project and, consequently, formulate better ideas of how to address the risks. Project Risk Constellations are the spatial representations of explicit and implicit knowledge of the relationships, orders, hierarchies, dependencies and communication patterns of a project. They provide multi-dimensional and multi-layered information and reveal deeply rooted mechanisms. They quickly enable project managers to better understand the dynamics of their project, the intended and unintended impacts, ambiguities as well as project risks and uncertainties.

Integrating Sustainability into Project Risk Management

One of the developments that changed today's business environment is the increased concern about the sustainability, or unsustainability, of our society. Silvius and Schipper (2014) identify a growing number of publications that study the impact of sustainability on project management. One of the ‘impact areas' they identify is the identification and management of risk in the project. This chapter discusses the main concepts of sustainability and their implications for project risk management. The main findings are that the integration of the concepts of sustainability imply (1) A broader identification and considering of risks, expanding the orientation on risks to include also environmental and social perspectives and to consider the full life-cycle of the project's deliverable, impact and resources. (2) Inclusion of (potential) stakeholders in a transparent process of project risk management. And (3) Adopting a social, communicative, approach to risk management, as opposed to the calculating, rational approach.

Educating Project Managers to Deal with Project Risks

During the last years, the development of the project risk management competencies became a ubiquitous objective for education and training in project management due to the increasing constraints which companies face on the implementation of their projects. Alignment to the professional standards and usage of innovative methods in designing and delivery of instruction represent common requirements that education and training providers should consider and fulfill. The authors examine the main challenges in addressing project risk management subject in the education programmes and identify how these challenges could be dealt by using curriculum management systems. In order to implement the identified improvements, the authors propose an innovative architecture for a curriculum management system, which can be adopted by those universities interested in developing competencies-based programmes in project management. Some preliminary results are presented and discussed.

Managing Risks in the Innovation Projects in the Services Sector

The purpose of this chapter is to provide a review on the similarities and/or the heterogeneity of the innovation taxonomy that could be found in the economic domain highlighting that in the specialized literature different terms are used for the same type of technical change and innovation and the same term is used for different types of innovation. This classification ambiguity represents a challenge when comparing different studies. Schumpeter highlights how technical knowledge is acquired both through invention and innovation. A detailed review of the innovation taxonomy in an economy of innovation will be provided. Taxonomy of innovation in the technology management is also provided. An analysis of the innovation projects characteristics in service industry is presented, as the basis for a proposed framework for managing risks. A case study for the Romanian mobile communication industry using data provided by specialized publications is presented at the end of the chapter.