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Risk Management Method for Reducing Loss Cost

— Presentation at ProMAC2016 —

January 31, 2017

Report from Presenter

From November 16th, 2016 through 19th, ProMAC2016 was held in the Gold Coast, Australia. ProMAC is an annual international society participated by project managers, PMOs (Project Manager Offices) and researchers engaged in management methods, who are mainly from Asia Pacific area. The author gave a presentation on the risk management technique for loss cost cuts titled "A risk management method for reducing loss-cost."


Fig. 1 Consideration about project failure
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Loss cost is "expense that should not be originally spent and the useless expense." In late years failure projects have a big influence on corporate management, and reduction of the loss cost becomes the important issue. For the reduction of the loss cost, it is necessary to grasp risks in the project early, and to perform appropriate measures. When we take measures to meet the risks, it is necessary to prioritize measures method and time considering limited human resources and cost schedule. When coverage and prioritization of the risks are insufficient, the measures become insufficient and, as a result, may produce a loss.

Therefore we proposed risk management technique focusing on causal structure among the risks. The failure of the project can be expressed as a chain of the risks leading to the loss (figure 1). We call this chain reaction information of the risks "risk propagation model." We expect we can prevent the oversight of the risk and an error of the prioritization by extracting path to the possible loss from the state of the project as a failure scenario and showing it with the impact. We call this approach "scenario base risk management" (SRM).


Fig. 2 Risk Propagation Model
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Fig. 3 Concept of risk-management method
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Four mechanisms are necessary to realize this scenario base risk management. The first is the risk propagation model that is the chain reaction information of the risks (figure 2). The second is the mechanism judging outbreak of any node of the risk propagation model. The third is the mechanism extracting a failure scenario based on the outbreak of any node. The last is indicating the measures plan to prevent a failure scenario (figure 3). The extracting method of the failure scenario can be realized by extracting the path to an accessible loss from a node occurring in a risk propagation model (figure 4, figure 5).


Fig. 4 Recognizing state of a project
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Fig. 5 Presenting failure scenarios
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After constructing a risk propagation model based on the past examples, and applying this technique to real projects, we've got a prospect that it should be useful for extraction of risks and measures planning support. For the practical use of these results of our research, we are going to push forward examination in future.

(By UCHIDA Yoshinobu)

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