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Modeling External Risks in Project Management

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Abstract:

To ascertain the viability of a project, undertake resource allocation, take part in bidding processes, and other related decisions, modern project management requires forecasting techniques for cost, duration, and performance of a project, not only under normal circumstances, but also under external events that might abruptly change the status quo. We provide a Bayesian framework that provides a global forecast of a project's performance. We aim at predicting the probabilities and impacts of a set of potential scenarios caused by combinations of disruptive events, and using this information to deal with project management issues. To introduce the methodology, we focus on a project's cost, but the ideas equally apply to project duration or performance forecasting. We illustrate our approach with an example based on a real case study involving estimation of the uncertainty in project cost while bidding for a contract.

Keywords: Bayesian analysis; copulas; decision analysis; expert opinion; project costing; project risk; risk management

Document Type: Research Article

DOI: http://dx.doi.org/10.1111/j.1539-6924.2007.00935.x

Publication date: August 1, 2007

bpl/risk/2007/00000027/00000004/art00013
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