Project Risk management and Decision Analysis: Training, Consulting, Books, Papers

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Project Decision Analysis and Risk Management

Preface

Project management is the art of making the right decisions. To become an effective project manager, one must be conversant on the following questions:

How do we make rational choices in project management?
How can we improve our ability to make these choices?
What tools are available to help us during this process that will allow us to make better decisions?

In most cases, the answers to these questions are not trivial. In managing projects, we deal with multiple objectives, multiple risks and uncertainties, and multiple stakeholders. And the underlying framework of project management problems can be very complex.

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Fortunately, there is a practical set of methods and tools that can help solve these problems. This set is referred to as decision analysis. A unique aspect of decision analysis is that it involves two seemingly separate disciplines: (1) the psychology of judgment and decision-making and (2) mathematics and statistics. Psychologists try to understand the underlying mental processes we use when we make decisions. Mathematicians try to apply their knowledge and utilize the numbers involved in project management to assess and evaluate options. In this manner, both mathematicians and psychologists are looking to develop methodologies that will improve our ability to make good decisions despite the inherent limitations of our mental capabilities.

In recent years, decision analysis has become a practical tool in many disciplines. Companies routinely base their major investment strategies on the results of decision analysis and, in industries such as energy or pharmaceuticals, companies never proceed with major projects without a comprehensive structured decision analysis. Decision analysis is used to analyze mergers and acquisitions, capital investment, reorganization, and new product development. Governments apply decision analysis to their policy development, lawyers use it to assess complex litigation that has an uncertain outcome, and medical professionals use it to help them make correct diagnoses and prescribe the most effective treatments.

We came to project management from a decision science, background and believe that project management is a primary candidate for the application of decision analysis. We soon discovered, however, that most organizations use only a few components of the decision analysis process. In addition, many project managers are not familiar with the decision analysis approaches that are in wide use in other industries, or if they are aware of the processes, they do not believe that they are applicable to their own industry or organization. When we started to make presentations about the psychology of judgment and decision-making in project management, it was an eye-opening experience for many project managers. At that point, we decided that the best way to get our message out to the widest audience would be to publish a book that would provide a short and practical introduction to decision analysis.

Project management is all about processes. Decision analysis provides processes that will help project managers improve their ability to make good decisions. In Part 1 of this book we outline the project decision analysis process. The subsequent four chapters describe each phase of the process in detail, including a review of both its psychological aspects and quantitative methods. We have tried to avoid complex mathematical discussions because we believe in the maxim ”The knowledge of geography is unnecessary as long as there are taxi drivers.” In other words, complex mathematics and statistics are implemented in the myriad software applications for you to use as a manager; therefore, don’t need to know all the details. Instead we concentrate in the book on the psychology of decision-making, which we think is terra incognito for many project managers. Decision-making is a fundamental skill of project management that can be improved by training. If project managers can avoid known mental traps and follow certain thinking processes, the quality of project decisions can be significantly improved.

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We hope that the book will be useful and entertaining for everybody involved in the project management process: managers, members of project teams, and project sponsors. As part of this effort, we have tried to map our discussion of the decision analysis process to the project management process described in PMI’s A Guide to the Project Management Body of Knowledge (PMBOK® Guide). Finally, technical books are a lot like exercise machines. You can make a resolution to get in shape or lose weight and buy an exercise machine, which you then use religiously for a couple of weeks. When you see a few results – when you look down your toes are visible for the first time in years – your interest flags, tedium sets in, and eventually the treadmill is collecting dust in the basement. The same thing happens with most technical books. You use it for a few weeks and are able to get a few small improvements, but the reading is so tedious and boring that you would rather poke yourself in the eye than read the next chapter. We really hope that it is not an issue with our book, and we have tried to make it as interesting as possible.

Lev Virine

Michael Trumper

Calgary, Canada, 2007