Journal of Japan Industrial Management Association
Online ISSN : 2187-9079
Print ISSN : 1342-2618
ISSN-L : 1342-2618
Risk-based Project Value: General Definition and Application to Progress Control
Tomoichi STAO
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2009 Volume 60 Issue 3 Pages 175-182

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Abstract

In this paper, the general definition of risk-based project value (RPV) is proposed for the evaluation of projects with complex network diagrams containing serial and parallel activities. RPV can be calculated based on cash flows and the risk probabilities of termination associated with project activities. RPV analysis aims at overcoming the limitations of static evaluation methods such as discounted cash flow (DCF), which are applicable only to projects in the planning phase. The definition of the contributed value (CV) of an activity to the project is also defined. The CV is proportional to the risk probability. Risk-based project progress measurement can be calculated using the CV. A numerical case study on a new product development project shows that risk-based progress measurement is more sensitive to early intellectual activities than the conventional cost-based method.

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© 2009 Japan Industrial Management Association
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