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Managing Project Risk and Uncertainty: A Constructively Simple Approach to Decision Making

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Rigorously grounded conceptually but developed to meet practical concerns, this book underpins and extends the scope and power of current approaches to the management of risk and uncertainty in projects and related operational and strategic management decision making.

Ten tales, based on real cases, explore a range of project related problems, including: cost estimation, pricing competitive bids, risk allocation and incentive contract design, evaluation of threats and opportunities, buffer management in a supply chain, investment appraisal, portfolio management, and strategy formulation. Each tale provides practical guidance on achieving effective and efficient uncertainty management through simple analysis and discussion of emergent issues.

Using a 'constructively simple' approach to model building and the associated decision support processes, the authors show the reader how to take the guesswork out of managing risk and uncertainty. Keeping formal analysis simple, without being simplistic, and adding complexity only when it facilitates additional insights, they provide a framework for 'constructive simplicity' which can be used to enhance risk and uncertainty management in any area of managerial decision making, whether in a project, operational, or strategic context.

"This is not just another book about risk. Chapman and Ward focus on decision-making in a holistic way, based on the analysis of uncertainty. The concepts are illustrated by "ten tales about uncertainty management". These are short stories based on case studies in which the authors have been involved. They believe in KISS - not the usual definition but 'keep it simple systematically." —Professor Tony M. Ridley, Imperial College, London

"Abundantly illustrated with case studies, this interesting book rightly highlights the need for simple, flexible models to manage risk and uncertainty. The author was associated with development of the PRAM model, which gives a rich variety of practical techniques for risk appraisal. The RAMP model provides a broad strategic framework, giving decision-makers an overall picture of the risks and rewards in a project. This book takes the discussion a stage further and provides many useful insights into the issues that arise in practice." —C G Lewin, Chairman, Risk Management Steering Group, Institute of Actuaries

"This book presents a holistic and comprehensive approach to management decision making. Whilst the concepts are readily understood, they are used to provide a thorough background to the management of uncertainty. This is an invaluable book for anyone facing decision-making and uncertainty in either management or programme and project environments." —Alan R Walker, Cabinet Office, Improving Programme and Project Delivery team

"Chris Chapman and Stephen Ward, through their constructively simple approach, and using Ockham's razor, show how simple models can be constructed that capture the essentials of any business and project scenario. By interpreting the problems as short stories, they are brought to life, showing that the decision is not just based on the quantitative and qualitative analysis of the risk, but also on the human condition, people's motivations, right down to whether they like the cup of tea." —Rodney Turner, Director of Erasmus University, Rotterdam, and Director of EuroProjex

"In this well written book the reader is drawn from simple to advanced concepts of risk management by stories that reflect situations we all recognize. Chapman and Ward continually test the robustness of their conclusions by exercising the assumptions against reality and common sense, and they remind us about the importance of understanding the quality of the data being used. By the end of the book, the reader will have experienced a rather concentrated journey through many sophisticated analytical concepts and have shared in exercises in mature professional judgement. This book will START TRANSACTION WITH CONSISTENT SNAPSHOT; /* 1058 = 48a70bf8b2140749a4ca88e0c7e1df64

Author(s): Chris Chapman, Stephen Ward
Publisher: Wiley
Year: 2002

Language: English
Pages: 515

Managing Project Risk and Uncertainty A Constructively Simple Approach to Decision Making......Page 4
Contents......Page 8
Preface......Page 12
Acknowledgements......Page 16
MANAGING UNCERTAINTY, RISK, THREAT AND OPPORTUNITY......Page 18
THE SCOPE FOR UNCERTAINTY IN MANAGERIAL DECISION PROCESSES......Page 19
TEN TALES ABOUT UNCERTAINTY MANAGEMENT......Page 22
A GENERAL PROCESS FOR SUPPORTING MANAGERIAL DECISION MAKING......Page 27
CONSTRUCTIVELY SIMPLE MODELS......Page 33
OTHER ASPECTS OF CONSTRUCTIVE SIMPLICITY......Page 35
KEEP IT SIMPLE SYSTEMATICALLY......Page 43
INTRODUCTION......Page 46
A STOCKHOLDING ISSUE......Page 47
FOCUSING THE PROCESS......Page 48
CONSTRUCTING A MODEL......Page 49
REFINING THE ANALYSIS: CONSIDERING SAFETY STOCK POLICY......Page 53
FURTHER REFINEMENTS: INFLUENCES ON HOLDING COSTS......Page 56
INTERPRETING THE RESULTS OF ANALYSIS CREATIVELY......Page 59
ALTERNATIVE CREATIVE INTERPRETATIONS......Page 61
OTHER STOCK CONTROL CONTEXTS......Page 63
OTHER BUFFER CONTEXTS......Page 64
CONCLUSIONS......Page 67
INTRODUCTION......Page 72
A BIDDING OPPORTUNITY FOR ASTRO......Page 73
A PRELIMINARY PROPOSAL DOCUMENT......Page 75
A PROPOSED MULTIPLE-PASS PROCESS......Page 80
FIRST-PASS UNCERTAINTY MANAGEMENT: IDENTIFYING NON-STARTERS......Page 81
SECOND-PASS UNCERTAINTY MANAGEMENT: IDENTIFYING NO-HOPERS......Page 83
THIRD-PASS INITIATION......Page 89
THIRD-PASS COST UNCERTAINTY ANALYSIS......Page 90
THIRD-PASS PROBABILITY OF WINNING ANALYSIS......Page 105
THIRD-PASS UNCERTAINTY SYNTHESIS......Page 111
THIRD-PASS BID SETTING DISCUSSION......Page 113
MANAGING REQUISITE CHANGE......Page 114
SOME GENERAL IMPLICATIONS......Page 126
OTHER BIDDING CONTEXTS......Page 128
CONCLUSION......Page 130
INTRODUCTION......Page 134
SOME BASIC CONCEPTS......Page 135
EDDY STARTS WORK......Page 143
EDDY’S FIRST-PASS MINIMALIST APPROACH......Page 145
FIRST-PASS INTERPRETATION AND ANTICIPATION OF FURTHER PASSES......Page 158
SCOPE FOR AUTOMATION......Page 161
ELIMINATING THE USE OF PROBABILITY IMPACT MATRICES......Page 163
MANAGING AND SHAPING EXPECTATIONS......Page 165
ROBUSTNESS OF THE MINIMALIST APPROACH......Page 167
THE USER PERSPECTIVE: CONDITIONAL ESTIMATES AND CUBE FACTORS......Page 171
CONCLUSION......Page 175
INTRODUCTION......Page 180
A DEVELOPMENT PROJECT......Page 181
A CONSULTANT IS HIRED......Page 183
A FRAMEWORK FOR PROJECT RISK MANAGEMENT......Page 185
A CRITICAL ASSESSMENT OF CURRENT COMMON PRACTICE......Page 192
FORMULATING AN INCENTIVE CONTRACT......Page 200
THE WAY FORWARD......Page 206
BIARS CONTRACTS......Page 208
CONCLUSION......Page 212
INTRODUCTION......Page 216
A CORPORATE UNDERSTANDING OF UNCERTAINTY OWNERSHIP......Page 217
ROGER’S DEFINING MOMENT......Page 218
A SIMPLE ANALYSIS OF ANCHOR RISK......Page 220
DISTRIBUTING THE OWNERSHIP OF UNCERTAINTY......Page 221
ROGER’S SIMPLE ANALYSIS OF DISTRIBUTED UNCERTAINTY OWNERSHIP......Page 229
AN INTERNAL TRIGGER CONTRACT TO MANAGE GOOD LUCK......Page 234
DESIGNING AN EXTERNAL TRIGGER CONTRACT......Page 243
A REVISED CORPORATE UNDERSTANDING OF UNCERTAINTY OWNERSHIP......Page 248
EPILOGUE......Page 253
CONCLUSION......Page 254
INTRODUCTION......Page 256
THE RAIL PASSENGER SAFETY TRUST......Page 259
A CONVENTIONAL ANALYSIS OF RAILWAY BUFFER EVENTS......Page 260
A SIMPLE SCENARIO ANALYSIS OF BUFFER EVENTS......Page 263
RISK EFFICIENCY FOR A RAILWAY SYSTEM......Page 271
RISK-REWARD BALANCE: HOW SAFE IS SAFE ENOUGH?......Page 274
AMBIGUITIES IN ‘THE RELEVANT PUBLIC’......Page 277
AMBIGUITIES IN EQUIVALENT FATALITIES......Page 279
REGULATION VIA MANDATORY INSURANCE......Page 281
CONCLUSION......Page 283
INTRODUCTION......Page 292
NORMAN’S SITUATION......Page 296
A FIRST-PASS MODEL AND PARAMETRIC ANALYSIS......Page 297
PROBABILISTIC ANALYSIS TO SUPPORT THE FIRST PASS......Page 305
A SECOND-PASS PROBABILISTIC ANALYSIS......Page 306
A THIRD-PASS PROBABILISTIC ANALYSIS......Page 308
A SUDDEN FLASH OF HINDSIGHT......Page 311
IS A REAL OPTIONS APPROACH REALLY USEFUL?......Page 314
CONCLUSION......Page 319
INTRODUCTION......Page 322
A MACHINE SELECTION PROBLEM......Page 323
A BASIC MODEL AND FIRST-PASS ANALYSIS......Page 324
EXPLORING THE VALUE OF MORE INFORMATION......Page 328
DIFFICULTIES WITH THE MODEL......Page 331
A PROJECT PORTFOLIO PERSPECTIVE......Page 333
ABANDONING A COMMON SET OF DISCRETE EVENTS WITH CERTAIN PAY-OFFS......Page 336
AN EXPLICIT THREAT AND OPPORTUNITY MANAGEMENT STRUCTURE......Page 341
AN EXPLICIT MULTIPLE-ATTRIBUTE STRUCTURE......Page 344
EXPLICIT ANALYSIS OF MULTIPLE-ATTRIBUTE TRADE-OFFS......Page 350
CONCLUSION......Page 356
INTRODUCTION......Page 362
SAM’S ASSIGNMENT......Page 364
A BASIC MARKOWITZ MEAN–VARIANCE MODEL......Page 365
EXTENDING THE BASIC MARKOWITZ MODEL......Page 372
SAM’S BASIC SYSTEM......Page 375
FURTHER CONSIDERATIONS WITH A SIMPLIFIED PORTFOLIO......Page 390
ROBUSTNESS OF SAM’S SYSTEM......Page 401
CONCLUSION......Page 406
INTRODUCTION......Page 410
CONRAD’S SITUATION......Page 411
PLANNING HORIZONS......Page 413
LONG-TERM STRATEGY FORMULATION......Page 416
MEDIUM-TERM STRATEGY FORMULATION AND INTEGRATION UPWARDS......Page 441
SHORT-TERM STRATEGY FORMULATION AND INTEGRATION UPWARDS......Page 451
INTEGRATING SOCIAL, ENVIRONMENTAL, ETHICAL AND POLITICAL ISSUES......Page 457
A CRISIS......Page 462
CONCLUSION......Page 464
SIMPLE EFFICIENCY......Page 468
BASIC CONCEPTS......Page 470
KEY MODELLING CONCEPTS......Page 471
KEY PROCESS CONCEPTS......Page 473
UNCERTAINTY MANAGEMENT SYSTEMS......Page 476
ADDRESSING CULTURAL BARRIERS TO UNCERTAINTY MANAGEMENT......Page 477
CULTURE CHANGE MANAGEMENT......Page 489
CONCLUSION......Page 490
Bibliography......Page 492
Index......Page 506