Strategic Decisions for Project Leaders: Exploiting Risk and Opportunity

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Once project risks are identified and quantitatively analyzed, the project manager needs to make decisions. Having created probabilistic models of project risks, powerful methods of decision science can be brought to bear in making optimal plans and creating contingencies.

While some strategies can be executed concurrently with proactive management, risk can also be transferred or eliminated using carefully-planned strategies. These methods open the possibility of smarter decisions with more risk-neutral tactics that take advantage of capital markets. Financial approaches to transferring risk by insurance, catastrophe bonding, and other mechanisms is a poorly understood but efficacious method for dealing with unique risks on large and potential consequential projects.

By leveraging the appropriate tools for estimation using Bayesian thinking, classical utility theory, and behavioral economics, the project management executive or project owner can exploit risk to their advantage. The opportunities for construction firms, facility managers, municipal governments, and investors is enormous and growing.