Selecting risk response strategies considering project risk interdependence

• An approach for measuring the risk interdependence
• An optimization model for selecting risk response strategies
• A weighting function considering the risk interdependence and its two directions
• Analysis of effects of risk interdependence on project risk response
• Sensitivity analysis

In risk response analysis, risks are often assumed independently. In fact, however, risks in a project mutually affect and the independent risk seldom exists in reality. This paper provides an approach to quantitatively measure the risk interdependence. Based on the analysis of the risk interdependence, we construct an optimization model for selecting risk response strategies considering the expected risk loss, risk interdependence and its two directions. Further, the effects of the risk interdependence on risk response can be investigated. There are two major findings by the analysis of the case project. First, the expected utility would be more sensitive to the risk interdependence itself than to the directions of it. Second, the insufficient attention paid to or neglect of the risk interdependence would lower the expected utility and increase the implementation cost.