Monitoring Risk Response Actions for Effective Project Risk Management

Abstract

Complex projects typically involve high-consequence, project-specific risks that require detailed analysis and for which risk response actions (RRAs) need to be developed and implemented. The risk picture is dynamic. The sources and consequences of risks evolve and change over the project lifecycle; thus, it is necessary to constantly monitor risk. RRAs that do not keep pace with the changing project situation are a major cause of risk management failures. This paper extends traditional cost risk analysis from a purely macroscopic perspective by evaluating and tracking project-specific risks and RRAs at the microscopic level. The key elements of the method are (i) develop risk scenarios, (ii) model them using generalized decision trees, and (iii) quantify the risks using Monte Carlo simulation. For each risk the probability and cost values are conditional on the specific RRA and the preceding outcomes. The use of fractional factorial design provides a subset of all possible RRA combinations for efficiently determining the preferred total project RRA solution. Risk curves are generated to provide the necessary information to analyze, track, and manage the performance of the selected RRAs over time. Project managers and team leaders can use this information to dynamically manage the RRAs to keep pace with the changing project situation, thereby increasing the probability of project success in a cost-effective manner. The approach is detailed using a realistic but simplified case of a project examined first with one and then expanded to three technical risks.