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

515 Pages·2002·1.55 MB·English

by  Chris Chapman

Managing
Project Risk
and Uncertainty
A Constructively Simple Approach to Decision Making
Chris Chapman and
Stephen Ward
School of Management
University of Southampton

Managing
Project Risk
and Uncertainty
A Constructively Simple Approach to Decision Making
Chris Chapman and
Stephen Ward
School of Management
University of Southampton
Copyright © 2002 John Wiley & Sons, Ltd.,
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To optimists

Contents
Preface IX
Acknowledgements XIII
1 Introduction 1
MANAGINGUNCERTAINTY,RISK,THREATANDOPPORTUNITY 1
THESCOPEFORUNCERTAINTYINMANAGERIALDECISIONPROCESSES 2
TENTALESABOUTUNCERTAINTYMANAGEMENT 5
AGENERALPROCESSFORSUPPORTINGMANAGERIALDECISIONMAKING 10
CONSTRUCTIVELYSIMPLEMODELS 16
OTHERASPECTSOFCONSTRUCTIVESIMPLICITY 18
KEEPITSIMPLESYSTEMATICALLY 26
2 Nicola’s tale: sizing inventories and other buffers 29
INTRODUCTION 29
ASTOCKHOLDINGISSUE 30
FOCUSINGTHEPROCESS 31
CONSTRUCTINGAMODEL 32
REFININGTHEANALYSIS:CONSIDERINGSAFETYSTOCKPOLICY 36
FURTHERREFINEMENTS:INFLUENCESONHOLDINGCOSTS 39
INTERPRETINGTHERESULTSOFANALYSISCREATIVELY 42
ALTERNATIVECREATIVEINTERPRETATIONS 44
OTHERSTOCKCONTROLCONTEXTS 46
OTHERBUFFERCONTEXTS 47
CONCLUSIONS 50
3 Martha’s tale: setting bids and other pricing decisions 55
INTRODUCTION 55
ABIDDINGOPPORTUNITYFORASTRO 56
APRELIMINARYPROPOSALDOCUMENT 58
APROPOSEDMULTIPLE-PASSPROCESS 63
vi Contents
FIRST-PASSUNCERTAINTYMANAGEMENT:IDENTIFYINGNON-STARTERS 64
SECOND-PASSUNCERTAINTYMANAGEMENT:IDENTIFYINGNO-HOPERS 66
THIRD-PASSINITIATION 72
THIRD-PASSCOSTUNCERTAINTYANALYSIS 73
THIRD-PASSPROBABILITYOFWINNINGANALYSIS 88
THIRD-PASSUNCERTAINTYSYNTHESIS 94
THIRD-PASSBIDSETTINGDISCUSSION 96
MANAGINGREQUISITECHANGE 97
SOMEGENERALIMPLICATIONS 109
OTHERBIDDINGCONTEXTS 111
CONCLUSION 113
4 Eddy’s tale: estimating measures of uncertain performance 117
INTRODUCTION 117
SOMEBASICCONCEPTS 118
EDDYSTARTSWORK 126
EDDY’SFIRST-PASSMINIMALISTAPPROACH 128
FIRST-PASSINTERPRETATIONANDANTICIPATIONOFFURTHERPASSES 141
ANTICIPATIONOFCORPORATELEARNING 144
SCOPEFORAUTOMATION 144
ELIMINATINGTHEUSEOFPROBABILITYIMPACTMATRICES 146
MANAGINGANDSHAPINGEXPECTATIONS 148
ROBUSTNESSOFTHEMINIMALISTAPPROACH 150
THEUSERPERSPECTIVE:CONDITIONALESTIMATESANDCUBEFACTORS 154
CONCLUSION 158
5 Ian’s tale: aligning buyer and supplier motivation 163
INTRODUCTION 163
ADEVELOPMENTPROJECT 164
ACONSULTANTISHIRED 166
AFRAMEWORKFORPROJECTRISKMANAGEMENT 168
ACRITICALASSESSMENTOFCURRENTCOMMONPRACTICE 175
FORMULATINGANINCENTIVECONTRACT 183
THEWAYFORWARD 189
BIARSCONTRACTS 191
CONCLUSION 195
6 Roger’s tale: assigning ownership of project uncertainty 199
INTRODUCTION 199
ACORPORATEUNDERSTANDINGOFUNCERTAINTYOWNERSHIP 200
ROGER’SDEFININGMOMENT 201
ASIMPLEANALYSISOFANCHORRISK 203
DISTRIBUTINGTHEOWNERSHIPOFUNCERTAINTY 204
ROGER’SSIMPLEANALYSISOFDISTRIBUTEDUNCERTAINTYOWNERSHIP 212
Contents vii
ANINTERNALTRIGGERCONTRACTTOMANAGEGOODLUCK 217
DESIGNINGANEXTERNALTRIGGERCONTRACT 226
AREVISEDCORPORATEUNDERSTANDINGOFUNCERTAINTYOWNERSHIP 231
EPILOGUE 236
CONCLUSION 237
7 Sarah’s tale: facilitating the precautionary principle 239
INTRODUCTION 239
THERAILPASSENGERSAFETYTRUST 242
ACONVENTIONALANALYSISOFRAILWAYBUFFEREVENTS 243
A SIMPLESCENARIOANALYSISOFBUFFEREVENTS 246
RISKEFFICIENCYFORARAILWAYSYSTEM 254
RISK-REWARDBALANCE:HOWSAFEISSAFEENOUGH? 257
AMBIGUITIESIN‘THERELEVANTPUBLIC’ 260
AMBIGUITIESINEQUIVALENTFATALITIES 262
REGULATIONVIAMANDATORYINSURANCE 264
CONCLUSION 266
8 Norman’s tale: discounting future performance measures 275
INTRODUCTION 275
NORMAN’SSITUATION 279
AFIRST-PASSMODELANDPARAMETRICANALYSIS 280
PROBABILISTICANALYSISTOSUPPORTTHEFIRSTPASS 288
ASECOND-PASSPROBABILISTICANALYSIS 289
ATHIRD-PASSPROBABILISTICANALYSIS 291
ASUDDENFLASHOFHINDSIGHT 294
ISAREALOPTIONSAPPROACHREALLYUSEFUL? 297
CONCLUSION 302
9 Tess’s tale: making decision analysis practical 305
INTRODUCTION 305
AMACHINESELECTIONPROBLEM 306
ABASICMODELANDFIRST-PASSANALYSIS 307
EXPLORINGTHEVALUEOFMOREINFORMATION 311
DIFFICULTIESWITHTHEMODEL 314
APROJECTPORTFOLIOPERSPECTIVE 316
ABANDONINGACOMMONSETOFDISCRETEEVENTSWITHCERTAIN
PAY-OFFS 319
ANEXPLICITTHREATANDOPPORTUNITYMANAGEMENTSTRUCTURE 324
ANEXPLICITMULTIPLE-ATTRIBUTESTRUCTURE 327
EXPLICITANALYSISOFMULTIPLE-ATTRIBUTETRADE-OFFS 333
CONCLUSION 339