Robust decision making under risk management

Latest revision as of 09:28, 9 April 2023

1 Abstract 2 The Big Idea Risk management is important for an organization, effective risk management means attempting to control, as much as possible, future outcomes by acting proactively rather than reactively. Therefore, risk management gives an opportunity to the reduce the possibility of a risk occurring and its potential impact. 2.1 The Risk Management Profile 2.1.1 The Concept of Risk

A risk is an uncertain event or sets of events which will have an effect on the achievement when it occurs. In the engineering management process, risk cannot be avoided, and the risk can consist of two main elements for a particular event. one is the likelihood of the event occurring; the other is the consequences of the event. Moreover, risk cannot easily be quantified, although this factor was taken into consideration when making a decision. 

Risk can be explained in many ways in different situation, and it depends on the viewpoint and context. There is an overall equation to estimate risk, which is: Risk=Probability of accident occurring*expected loss in case of the accident(consequence). 2.1.2 The Project Risk Management VS Portfolio Risk Management

Risk management (RM) is about defining sources of uncertainty (risk identification), estimating the consequences of uncertain events (risk analysis), generating response strategies in the light of expected outcomes and based on these outcomes, carrying out identification, analysis and respond generation steps repetitively throughout the life cycle of a project to ensure that the project aims objectives are met[2]. Portfolio risk management differs from project risk management in that the goal of risk management at the project level is to minimize threats and maximize opportunities. What is more, a program or project is concerned with risks and issues that arise inside the specific program or project.

Portfolios are concerned with these factors: (a). Maximizing the value of the portfolio; (b). Tailoring the fit of the portfolio to the organizational vision, strategy, and objectives by aligning with business model; (c). Determining how to balance the programs and projects within the portfolio given the the capacities of organization[1]. 2.2 Risk and Uncertainty Risk comes a wide variety of sources in management field, including financial uncertainty, legal liabilities, the bias of strategic management and natural disasters. There is some differences and links between risk and uncertainty. As the essay mentioned before, risk is the possibility that events will not occur as planned; while the uncertainty means the unpredictable and uncontrollable event that affect business decision and actions. Meanwhile, risk is a consequence of uncertainty, which arises from the complexity factors in managerial decisions and the external business environment. The former can be interpreted as all the relationships are imperfectly understood in managerial decisions, and it is also unlikely that all the information which might be desired for decision-making is either available or accurate; the latter means an external business environment will always present behaviour which cannot be fully anticipated[1].

[edit] References

1. Robert J. Lempert, David G. Groves, Steven W. Popper, Steve C. Bankes, (2006) A General, Analytic Method for Generating Robust Strategies and Narrative Scenarios. Management Science 52(4):514-528.
2. Kouvelis, Panos. Robust discrete optimization and its applications
3. AXELOS, and Cabinet Office. Managing Successful Programmes 2011 Edition. London: The Stationery Office Ltd, 2011.
4. Dimitris BertsimasAurélie Thiele. Robust and Data-Driven Optimization: Modern Decision Making Under Uncertainty. In INFORMS TutORials in Operations Research. Published online: 14 Oct 2014; 95-122.