Economic Decision Making and Risk Management in a Project Management Environment: A Reflection of Practice

Economic Decision Making and Risk Management in a Project Management Environment: A Reflection of Practice

Brian J. Galli (Department of Engineering, Hofstra University, Hempstead, USA)
Copyright: © 2020 |Pages: 24
DOI: 10.4018/IJAL.2020070101
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Abstract

In today's uncertain business environment, companies must evaluate risk for projects before making business decisions. For example, one can use the SMART method. Also, Gantt charts help the project manager to schedule and plan, which helps in decision-making for the project. Technology has created software for discovering the probability of the risk with algorithms and many mathematical methods. However, pre-existing literature does not show how these variables, their concepts, and models help in project management, which has resulted in a research gap. Thus, this study addresses the most current variables, their concepts, and models within operations and project management. With a design-science-investigate strategy, the authors approve a valuable growth reveal for reasonable and hypothetical application. Thus, they create a suitable assessment model to fill the research void, as well as to contribute to the engineering field by improving the project success rates and helping with team communication.
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Introduction

In project management, economic decisions always have some kind of risks that consist of two primary factors: risk and cost. Risk management is important because it can forecast and evaluate the financial risk that can avoid impacts on your business or project. It is also helpful for decision-making, as it is converted mathematically in the form of probability. Probability is how likely an event will happen in the form of percentages and numbers. In a decision-making policy, there are many things to consider, such as the probability of risk, the consequence of risk, and the economic risk. Then, uncertainty-affecting events that contribute in evaluating the realization of the project need to be considered. Risk analysis has become an active and widespread practice in economics that evaluates the risk on a global level. Macroeconomics consists of risk analysis and risk management at a global level, while its focus is dealing with the company at a global level. Many business decisions are taken based on the estimates of the future with the hopes of profit and project success, but many of these decisions are based on estimates, assumptions, expectations, predictions, and forecasts with sometimes-unpredicted risks. As a result, one must gather all possible information to allow the decision-making process and prioritization to lead to the proper decision for a project.

Project management requires sufficient decision-making, as there are repercussions to poor decision-making. For example, the San Francisco Bay Bridge began in early 2005 to stop construction, but later in 2005, they continued to build the bridge based on the original project. The result of indecisiveness and unpreparedness was paying $81 million to California taxpayers and toll payers. Thus, wrong decisions and being unprepared within projects can harm the project, the company who is funding it, and its reputation. Additionally, there can be poor decisions from the pharmaceutical industry. For instance, Martin Shkreli decided to increase the price of a pill, Daraprim, which is used for HIV/AIDS, from $13.5 to $750 per pill. This poor decision made him win a fortune, as his net worth is $70 million, but he is known as “the most hated man in America.” Thus, when a project is initiated, it is important to know that poor economic decisions can negatively impact the company or project as a whole.

Research Gap

Currently available literature exemplifies a research gap on these variables, their concepts, and models. There is little examination of the variable sunder study and how they lead to a smooth progression of operations and project management. In this study, we will address and fulfill this research gap. Furthermore, we will evaluate the aspects of the most current variables, their concepts, and models in reference to operations and project management. With this study, we seek to assess any likenesses and differences between the variables, their concepts, and models to further understand them.

Background

Through the years, risk assessment and management have not always been considered. For example, Marco Polo made his business venture on the Silk Road with Genghis Khan around 1290, and Christopher Columbus around 1490 endeavored to find a different road for the spice trade. Meanwhile, there are successful businessmen like Warren Buffet or Michael Bloomberg, who are almost experts in risk management and are successful businessmen. They know how to run a multinational investment company, as bigger risks yield bigger profits.

Economic decision-making normally involves six steps: defining the problem, identifying choices, evaluating their advantages and disadvantages, selecting one choice, enforcing the decision, and assessing the choice that was made. The steps are basic ways for the business to come closer to profit or growth, but the nature of the decision depends on the type of economic system that they follow. Such a different economic system involves traditional economy that makes decisions by repeating the decisions of previous generations. A command economy is just one person who makes the calls and decisions, and it is common for the market economies to be based on individuals and businesses that make the decisions.

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