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    An analytical model for budget allocation in risk prevention and risk protection

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    Publication type
    Journal article with impact factor
    Author
    Guan, Xin
    Servranckx, Tom
    Vanhoucke, Mario
    Publication Year
    2021
    Journal
    Computers & Industrial Engineering
    Publication Volume
    161
    Publication Issue
    November
    
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    Abstract
    Risk is inherent and inevitable during project execution. Its occurrence often has an adverse impact on the project or even leads to project failure. In order to ensure the successful project completion, risk prevention used for reducing the risk probability and risk protection used for reducing the risk loss should be considered. Given the different effects and costs of these two strategies and the limited project budget, project managers should be able to reasonably divide the budget among these two strategies. This study proposes a budget allocation method consisting of three modules for mitigating the project risks. First, we model the relation between the effect and cost of each strategy as linear and non-linear relations. Second, two mathematical models are built and the corresponding analytical solutions are obtained. Afterwards, a three-step procedure for budget allocation is proposed. To validate the analytical results and investigate the impacts of the characteristics of the project risk and response on the optimal budget allocation, numerical experiments are conducted and managerial insights are drawn. Finally, the budget allocation model is extended with multiple risks, secondary risk and risk transfer, and validated using an empirical analysis.
    Keyword
    Budget Allocation, Risk Prevention, Risk Protection, Analytical Solution, Project Risk Management
    Knowledge Domain/Industry
    Operations & Supply Chain Management
    DOI
    10.1016/j.cie.2021.107657
    URI
    http://hdl.handle.net/20.500.12127/6970
    ae974a485f413a2113503eed53cd6c53
    10.1016/j.cie.2021.107657
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