ReportTitle:Project Management: A Research Agenda and Risk-Adjusted Net Present Value
Reporter(Institution):Nicholas G. Hall(The Ohio State University)
Time:02:30.pm,18th April, 2016
Location:B-201, Building of Economics & Management, JiulonghuCampus
Abstract:Project management has recently experienced remarkable growth in business interest, as shown by a 1000% increase in membership in the Project Management Institute since 1996. Today, one-fifth of the world’s economic activity, with an annual value of $12T, is organized as a project. This growth is largely attributable to new applications, for example IT, R&D, new product and service development and corporate change management, with different characteristics and requiring new methodologies. Yet projects still routinely fail to deliver on time, on cost and within scope. This talk outlines an agenda for project management research, including a detailed discussion of open issues that are both practically important and theoretically interesting. Within this agenda, one important topic is calculation of the performance measure net present value (NPV), which is used for project evaluation and selection. It is widely recognized that, during project execution, the level of risk diminishes. In principle, this should be represented in the discount rate that is used in the calculation of NPV. This paper represents what is apparently the first attempt to accomplish this. We model decreasing project risk by removing from the discount rate the risk factor associated with each task when it is completed. We formulate and solve the resulting nonlinear, nonconcave problem of maximizing the risk-adjusted NPV of a project. Our work enables better scheduling of projects, which increases their NPV. Also, our estimation of maximum risk-adjusted NPV enables a company to make better informed project selection decisions. We validate the contribution of our work using two computational studies: the first demonstrates a significant increase in maximum project NPV from improved project scheduling; the second demonstrates a significant increase in total project portfolio value from improved project selection. Our work also motivates companies to develop more precise information about their project risks.
