An Optimal Model for Project Risk Response Portfolio Selection (P2RPS) (Case Study: Research Institute of Petroleum Industry)

By Soofifard, Rahman; Bafruei, Morteza Khakzar | Iranian Journal of Management Studies, Autumn 2016 | Go to article overview

An Optimal Model for Project Risk Response Portfolio Selection (P2RPS) (Case Study: Research Institute of Petroleum Industry)


Soofifard, Rahman, Bafruei, Morteza Khakzar, Iranian Journal of Management Studies


(ProQuest: ... denotes formulae omitted.)

Introduction

In today's turbulent and ever-changing world, which is full of uncertainties and risks, knowledge and awareness are necessary for survival and success. A greater number of errors in management decision making and time and budget estimations are expected if the internal and external risk factors are not identified in a project. Risk factors are identified, controlled, or eliminated by risk management via selection and analysis of proper strategies. Risk is an uncertain condition that, if materialized will affect some work packages of the project in terms of quality, schedule, and cost (see, e.g., Ben-David & Raz, 2001; Seyedhoseini et al., 2009). Two substantial attributes of the risk event, the probability of occurrence and the negative impact (PMI, 2001), will be considered in this paper.

Risk management includes a set of necessary processes for identification, analysis, and reaction toward project risks aiming to maximize the results of desirable incidents and minimize the outcomes of undesirable incidents that may affect the major objectives of the project. The objective of risk management increases the possibility of project success by systematic identification and assessment of risks, presenting methods to avoid or reduce them, and maximizing opportunities (Chapman & Ward, 2003).

Risk management is one of the important fields of project management. All steps in risk management process are of equal importance. Incomplete implementation of each of the steps can lead to ineffective risk management (Conrow, 2003). On the other hand, many researchers have corroborated that risk assessment and analysis would not be effective without accountability (Hillson, 1999). Little information is available about the application of risk management in the real world though many results have been published in this regard (Lyons, 2002).

Risk management is, generally, referred to as project risk identification, awareness about the priority of each analysis, and assumption of an appropriate response strategy for these risks. Risk management includes risk identification, assessment, and response selection. Risk responses can be categorized by different methods. One categorization includes preventive and reactive responses.

Preventive/early response aims at avoiding the probability of risk occurrence. Reactive response also referred to as curing/ limiting/ precautious response, means to reduce the effect of risk occurrence. Preventive responses have also been preferred to reactive ones (Lyons, 2002). Two levels have been considered for classification of risk responses. The first level is the general categorization of the responses, which indicates the response risk, and the second level includes listing a set of specific responses under any strategy. Risk responses are classified into four categories including risk avoidance, reduction, transfer, and acceptance. Like threats, equivalent strategies can be defined for opportunities. In accordance with avoidance, reduction, transfer, and acceptance strategies in threats, benefit, sharing, enhancement, and acceptance strategies are defined for opportunities (Hillson, 2001).

Some frameworks have been developed for the selection of proper risk response strategies. Hillson (2001) defines the common practice in identification and selection of risk responses in the form of a cascade chart. In this method, risk avoidance strategy is checked first, and then transfer strategy will be studied if the risk could not be avoided. Reduction strategy will be studied if the response is not selected, and finally, risk acceptance strategy is investigated.

Previous studies have not focused on the interaction of risk responses and the synergistic effect of the responses, which is unavoidable in the real world. In the present study, risks are identified and the corresponding responses are selected on the basis of Work Breakdown Structure (WBS). …

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