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Modeling External Risks in Project Management

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  • Jesus Palomo
  • David Rios Insua
  • Fabrizio Ruggeri

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.

Suggested Citation

  • Jesus Palomo & David Rios Insua & Fabrizio Ruggeri, 2007. "Modeling External Risks in Project Management," Risk Analysis, John Wiley & Sons, vol. 27(4), pages 961-978, August.
    • Handle: RePEc:wly:riskan:v:27:y:2007:i:4:p:961-978
    DOI: 10.1111/j.1539-6924.2007.00935.x
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    References listed on IDEAS

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