Understanding and Managing Risks in Large Engineering Projects

Lessard, Donald R.; Miller, Roger

doi:10.2139/ssrn.289260

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Understanding and Managing Risks in Large Engineering Projects

18 Pages Posted: 8 Nov 2001

See all articles by Donald R. Lessard

Donald R. Lessard

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Roger Miller

Ecole Polytechnique - Department of Mathematics and Industrial Engineering

Date Written: October 2001

Abstract

Large engineering projects are high-stakes games characterized by substantial irreversible commitments, skewed reward structures in case of success, and high probabilities of failure. Drawing on 60 real life projects, this article shows that successful projects are not selected but shaped with risk resolution in mind. Rather than evaluating projects at the outset based on projections of the full sets of benefits, costs and risks over their lifetime, successful sponsors start with project ideas that have the possibility of becoming viable. Successful sponsors then embark on shaping efforts to influence risk drivers.

Keywords: Risk Management, Project Finance, Institutional Strategy, Governance

Suggested Citation: Suggested Citation

Lessard, Donald R. and Miller, Roger, Understanding and Managing Risks in Large Engineering Projects (October 2001). Available at SSRN: https://ssrn.com/abstract=289260 or http://dx.doi.org/10.2139/ssrn.289260