On the fallacy of averages in project risk management

On the fallacy of averages in project risk management

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Article ID: iaor20062028
Country: Netherlands
Volume: 165
Issue: 2
Start Page Number: 307
End Page Number: 313
Publication Date: Sep 2005
Journal: European Journal of Operational Research
Authors:
Keywords: risk, allocation: resources
Abstract:

Managers recognize the presence of uncertainty in the estimates of the various parameters of their projects, but usually circumvent the required analysis (which can be demanding) by replacing the random variables by their averages. This paper argues against such practice. It demonstrates that gross errors can be committed in cost estimates and in the bids based on them.

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