7,252 research outputs found
From Nobel Prize to Project Management: Getting Risks Right
A major source of risk in project management is inaccurate forecasts of
project costs, demand, and other impacts. The paper presents a promising new
approach to mitigating such risk, based on theories of decision making under
uncertainty which won the 2002 Nobel prize in economics. First, the paper
documents inaccuracy and risk in project management. Second, it explains
inaccuracy in terms of optimism bias and strategic misrepresentation. Third,
the theoretical basis is presented for a promising new method called "reference
class forecasting," which achieves accuracy by basing forecasts on actual
performance in a reference class of comparable projects and thereby bypassing
both optimism bias and strategic misrepresentation. Fourth, the paper presents
the first instance of practical reference class forecasting, which concerns
cost forecasts for large transportation infrastructure projects. Finally,
potentials for and barriers to reference class forecasting are assessed.Comment: arXiv admin note: text overlap with arXiv:1302.254
The price of risk in construction projects: contingency approximation model (CAM)
Little attention has been focussed on a precise definition and evaluation mechanism for project management risk specifically related to contractors. When bidding, contractors traditionally price risks using unsystematic approaches. The high business failure rate our industry records may indicate that the current unsystematic mechanisms contractors use for building up contingencies may be inadequate. The reluctance of some contractors to include a price for risk in their tenders when bidding for work competitively may also not be a useful approach. Here, instead, we first define the meaning of contractor contingency, and then we develop a facile quantitative technique that contractors can use to estimate a price for project risk. This model will help contractors analyse their exposure to project risks; and help them express the risk in monetary terms for management action. When bidding for work, they can decide how to allocate contingencies strategically in a way that balances risk and reward
How to adapt to changing markets: experience and personality in a repeated investment game
Investment behavior is traditionally investigated with the assumption that risky investment is on average advantageous. However, this may not always be the case. In this paper, we experimentally studied investment choices made by students and financial professionals under favorable and unfavorable market conditions in a multi-round investment game. In particular, the probability of winning was set so that investment in one condition was advantageous, and in one condition was disadvantageous. To investigate who is more likely to adapt their investment behaviors to the changing market conditions, we also measured personality and self-efficacy. We expected that investment behavior in changing markets could be predicted by a combination of experience (students, professionals), personality (anxiety, optimism, impulsivity, and Openness to Experience), and self-efficacy (belief in one’s ability to make good decisions in an investment task). Results indicate that professionals do not significantly differ from students in their decisions. Personality and self-efficacy both predicted investment behavior. In particular, we found that optimism and anxiety were a liability in unfavorable markets, leading to unreasonable levels of risk. Impulsivity was a liability in both favorable and unfavorable markets, leading to high risk on unfavorable markets, and low risk in favorable markets. Openness to experience was an asset in unfavorable markets, leading to adjusted risk taking. Finally, self-efficacy was generally related to higher levels of risk.risk taking; field experiment; personality; unfavorable conditions; professionals
Double Whammy - How ICT Projects are Fooled by Randomness and Screwed by Political Intent
The cost-benefit analysis formulates the holy trinity of objectives of
project management - cost, schedule, and benefits. As our previous research has
shown, ICT projects deviate from their initial cost estimate by more than 10%
in 8 out of 10 cases. Academic research has argued that Optimism Bias and Black
Swan Blindness cause forecasts to fall short of actual costs. Firstly, optimism
bias has been linked to effects of deception and delusion, which is caused by
taking the inside-view and ignoring distributional information when making
decisions. Secondly, we argued before that Black Swan Blindness makes
decision-makers ignore outlying events even if decisions and judgements are
based on the outside view. Using a sample of 1,471 ICT projects with a total
value of USD 241 billion - we answer the question: Can we show the different
effects of Normal Performance, Delusion, and Deception? We calculated the
cumulative distribution function (CDF) of (actual-forecast)/forecast. Our
results show that the CDF changes at two tipping points - the first one
transforms an exponential function into a Gaussian bell curve. The second
tipping point transforms the bell curve into a power law distribution with the
power of 2. We argue that these results show that project performance up to the
first tipping point is politically motivated and project performance above the
second tipping point indicates that project managers and decision-makers are
fooled by random outliers, because they are blind to thick tails. We then show
that Black Swan ICT projects are a significant source of uncertainty to an
organisation and that management needs to be aware of
Should we build more large dams? The actual costs of hydropower megaproject development
A brisk building boom of hydropower mega-dams is underway from China to
Brazil. Whether benefits of new dams will outweigh costs remains unresolved
despite contentious debates. We investigate this question with the "outside
view" or "reference class forecasting" based on literature on decision-making
under uncertainty in psychology. We find overwhelming evidence that budgets are
systematically biased below actual costs of large hydropower dams - excluding
inflation, substantial debt servicing, environmental, and social costs. Using
the largest and most reliable reference data of its kind and multilevel
statistical techniques applied to large dams for the first time, we were
successful in fitting parsimonious models to predict cost and schedule
overruns. The outside view suggests that in most countries large hydropower
dams will be too costly in absolute terms and take too long to build to deliver
a positive risk-adjusted return unless suitable risk management measures
outlined in this paper can be affordably provided. Policymakers, particularly
in developing countries, are advised to prefer agile energy alternatives that
can be built over shorter time horizons to energy megaprojects
Beyond Hofstede: Challenging the Ten Commandments of Cross-Cultural Research
Culture is a pervasive construct. A Google search for "culture" provides over half a billion hits, while the Yahoo! search engine generates a figure over two billion, which is more than for other such popular terms as politics, war, the environment, or sex. As for academic sources, the construct of culture has enjoyed immense interest from the scholarly community; major social science electronic databases provide links to 100,000–700,000 scholarly articles when "culture" is used as the search keyword
Logical Implications of GASB’s Methodology for Valuing Pension Liabilities
It is well known that the funding status of state and local government defined benefit pension plans, as measured by the accounting methodology prescribed by the Governmental Accounting Standards Board (GASB), improves when the plans take on more investment risk. This paper documents several lesser known logical implications of the GASB methodology. In particular, I show that GASB accounting is susceptible to the “Yogi Berra fallacy,” under which a pizza is less filling when sliced into fewer pieces: GASB gives different “valuations” for the exact same assets and liabilities when they are partitioned differently among plans. Moreover, the marginal valuation of assets can be negative under GASB. In such cases a plan can improve its GASB funding status literally by burning money. Finally, I show that GASB’s methodology is exactly equivalent to fairly valuing plan liabilities, but accounting for stocks at more than twice their traded prices, and further crediting a plan an additional dollar for each dollar of stock that it intends to buy in the future.
A model based framework for air quality indices and population risk evaluation, with an application to the analysis of Scottish air quality data
The paper is devoted to the development of a statistical framework for air quality assessment at the country level and for the evaluation of the ambient population exposure and risk with respect to airborne pollutants. The framework is based on a multivariate space–time model and on aggregated indices defined at different levels of aggregation in space and time. The indices are evaluated, uncertainty included, by considering both the model outputs and the information on the population spatial distribution. The framework is applied to the analysis of air quality data for Scotland for 2009 referring to European and Scottish air quality legislation
'Put Your Money Where Your Mouth Is!': Effects of Streaks on Confidence and Betting in a Binary Choice Task.
This is the final published version. It first appeared at http://onlinelibrary.wiley.com/doi/10.1002/bdm.1844/abstract.Human choice under uncertainty is influenced by erroneous beliefs about randomness. In simple binary choice tasks, such as red/black predictions in roulette, long outcome runs (e.g. red, red, red) typically increase the tendency to predict the other outcome (i.e. black), an effect labeled the "gambler's fallacy." In these settings, participants may also attend to streaks in their predictive performance. Winning and losing streaks are thought to affect decision confidence, although prior work indicates conflicting directions. Over three laboratory experiments involving red/black predictions in a sequential roulette task, we sought to identify the effects of outcome runs and winning/losing streaks upon color predictions, decision confidence and betting behavior. Experiments 1 (n = 40) and 3 (n = 40) obtained trial-by-trial confidence ratings, with a win/no win payoff and a no loss/loss payoff, respectively. Experiment 2 (n = 39) obtained a trial-by-trial bet amount on an equivalent scale. In each experiment, the gambler's fallacy was observed on choice behavior after color runs and, in experiment 2, on betting behavior after color runs. Feedback streaks exerted no reliable influence on confidence ratings, in either payoff condition. Betting behavior, on the other hand, increased as a function of losing streaks. The increase in betting on losing streaks is interpreted as a manifestation of loss chasing; these data help clarify the psychological mechanisms underlying loss chasing and caution against the use of betting measures ("post-decision wagering") as a straightforward index of decision confidence. © 2014 The Authors. Journal of Behavioral Decision Making published by John Wiley & Sons Ltd
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