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Using the Risk Register in Integrated    Cost/Schedule Risk Analysis    with Monte Carlo Simulation         David T. Hulet...
Agenda• Explain “Risk Factors” approach• Apply Risk Factors to schedule and cost risk• Apply Risk Factors to simple space ...
Limitations with the Traditional  3-point Estimate of Activity Duration• Typical schedule risk analysis starts with the  a...
Some Problems with Traditional             Approach• Can tell which activities are crucial, but not  directly which risks ...
We Propose a Different Approach:      Start with the Risks Themselves• Drive the schedule risk by the risks already  prior...
Simple Example of Risk Register Risks• Use the Risk Factors module in Pertmaster 8• Collect probability and impact data on...
Risk Factors Mechanics (1)• The risk factor is assigned to one or several  activities, affecting their durations by a  mul...
Risk Factors Mechanics (2)• Risk Factors are assigned a probability of  occurring on any iteration   – When the risk occur...
Risk FactorProbability is 100%, Factor can be + or -                                       0 0 1 0 - C o n s tr u c tio n ...
Assigning a Probability Less than 100%                                 0010 - Construction : Duration                     ...
Assigning   More than One Risk to an Activity• If more than one risk is acting on an  activity, the resulting ranges are t...
Two Risks affect One Activity      using Factors that Occur 100%                                0040 - T echnology Design ...
Two Risks with Less than 100%          Probability Affecting one Activity                                        0040 - T ...
Risk Factors Model How Correlation Occurs      Coefficients are Calculated (1)                            Risk #1         ...
Risk Factors Model How Correlation Occurs      Coefficients are Calculated (2)    Risk #2                      Risk #1    ...
Sensitivity to the Risk FactorsThe tornadodiagramfocuses onrisks, notactivities                  © 2009 Hulett & Associate...
Simple 2-Stage Space Vehicle Schedule          Software used: Pertmaster v. 8                 © 2009 Hulett & Associates, ...
Case Study: Simple Space Vehicle         Development Schedule•   87 month schedule•   11 work activities linked, 3 major m...
Two Types of Risk• Background risk based on typical general  risk, estimating error  – Used Quick Risk of -5% and +10%• Di...
Standard 3-point Range Representing          Schedule Estimating ErrorBackgroundrisk:Optimistic -5%Pessimistic+10%        ...
Results withSchedule Estimating Error Only                             Spacecraft Program                            Entir...
Risk Analysis on Space Vehicle Project   Risk Factors are from Risk Register                                              ...
Mapping Risks to Activities (1)                                      FS                      Requirements                 ...
Mapping Risks to Activities (2)                      US                                    US Final                       ...
Results Adding   Risk Factors to the Background Risk                                                        Spacecraft for...
Activity Tornado Chart                                  from All-In Simulation                                   Spacecraf...
Risk Factor Tornado                                         from All-In Simulation                                        ...
Contribution of  Each Risk to the Time Contingency (1)                                  Explain the Contingency to the P-8...
Contribution ofEach Risk to the Time Contingency (2)                 g                                                    ...
Resources and CostEstimate is$6.86 billion                    © 2009 Hulett & Associates,                           AcumenPM
Cost Risk Results                                                    Spacecraft for PMChallenge 2009                      ...
Contribution ofEach Risk to the Cost Contingency                 Contributions of Individual Risks to Cost RiskAll Risks  ...
Scatter Diagram of Time and Cost                                                                                          ...
Probabilistic Cash Flow                                                                                                   ...
Probabilistic Cash FlowCompared to Planned      © 2009 Hulett & Associates,             AcumenPM
Summary (1)• The focus is on the risks, not their impact• Risks “explain” the need for a contingency• Management appreciat...
Summary (2)• Use Risk Register for quantitative analysis• Specific risks can be quantified and assigned to  schedule activ...
Summary (3)• Schedule uncertainty creates cost  uncertainty• Analysis of cost simultaneously with time  requires inserting...
Using the Risk Register in Integrated    Cost/Schedule Risk Analysis    with Monte Carlo Simulation         David T. Hulet...
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  1. 1. Using the Risk Register in Integrated Cost/Schedule Risk Analysis with Monte Carlo Simulation David T. Hulett, Ph.D. Hulett & Associates, LLC Dr. Dan Patterson, PMP Acumen NASA PM Challenge Daytona Beach, FL February 24-25, 2009 © 2009 Hulett & Associates, AcumenPM
  2. 2. Agenda• Explain “Risk Factors” approach• Apply Risk Factors to schedule and cost risk• Apply Risk Factors to simple space vehicle development schedule as an example © 2009 Hulett & Associates, AcumenPM
  3. 3. Limitations with the Traditional 3-point Estimate of Activity Duration• Typical schedule risk analysis starts with the activity that is impacted by risks – Estimates the 3-point estimate for optimistic, most likely and pessimistic duration – Implies the risk is 100% likely with uncertain impact• Which risks cause the most overall schedule risk? Cannot say directly, but indirectly: – Sensitivity to activity durations – Criticality of activity durations © 2009 Hulett & Associates, AcumenPM
  4. 4. Some Problems with Traditional Approach• Can tell which activities are crucial, but not directly which risks are driving• Makes poor use of the Risk Register that is usually available• Cannot decompose the overall schedule risk into its components BY RISK – Ability to assign the risk to its specific risk drivers helps with communication of risk causes and risk mitigation © 2009 Hulett & Associates, AcumenPM
  5. 5. We Propose a Different Approach: Start with the Risks Themselves• Drive the schedule risk by the risks already prioritized in the Risk Register• For each risk, specify: – Probability it will occur (NEW) – Impact on time if it does (multiplicative factors, allows it to affect different duration activities) – Assign to the activities it will affect• Starting with the risks themselves gives us benefits – Links qualitative analysis to the quantitative analysis – Estimates the impact of specific risks for prioritized mitigation purposes – Correlations between activities modeled automatically © 2009 Hulett & Associates, AcumenPM
  6. 6. Simple Example of Risk Register Risks• Use the Risk Factors module in Pertmaster 8• Collect probability and impact data on risks• Map the risks to activities © 2009 Hulett & Associates, AcumenPM
  7. 7. Risk Factors Mechanics (1)• The risk factor is assigned to one or several activities, affecting their durations by a multiplicative factor – E.g., the factor may be .90 for optimistic, 1.0 for most likely and 1.25 for pessimistic – These factors multiply the schedule durations of the activities to which they are assigned• Risks can be assigned to one or more activities• Activity durations can be influenced by one or more risks © 2009 Hulett & Associates, AcumenPM
  8. 8. Risk Factors Mechanics (2)• Risk Factors are assigned a probability of occurring on any iteration – When the risk occurs, the factor used is chosen at random from the 3-point estimate and operates on all activities to which it is assigned – When not occurring on an iteration the risk factor takes the value 1.0, a neutral value• When an activity is influenced by more than one risk, their factors are multiplied together, if they happen, on any iteration © 2009 Hulett & Associates, AcumenPM
  9. 9. Risk FactorProbability is 100%, Factor can be + or - 0 0 1 0 - C o n s tr u c tio n : D u r a tio n 1 0 0% 11 5 2 50 9 5 % 1 11Here the 9 0 % 1 09 8 5 % 1 08 For theRanges are 2 00 8 0 % 1 06 7 5 % 1 05 examples webased on 7 0 % 1 04 use an activity 6 5 % 1 04deviations + with 100 days Cumulative Frequency 6 0 % 1 03 1 50and – from 5 5 % 1 02 in the Hits 5 0 % 1 01the Plan. 4 5 % 1 01 4 0 % 1 00 schedule 1 00Probability 35% 99 30% 99is 100% 25% 98 50 20% 97 15% 96 10% 95 5 % 94 0 0 % 90 90 95 10 0 1 05 1 10 11 5 D istrib u tio n (sta rt o f in te rva l) © 2009 Hulett & Associates, AcumenPM
  10. 10. Assigning a Probability Less than 100% 0010 - Construction : Duration 0040 - Technology Design : Duration 100% 115 100% 130Spike 95% 107 95% 123contains 90% 103 1200 90% 120 Spike 85% 101 85% 11870% of 2000 80% 100 80% 116 containsthe 75% 100 70% 100 1000 75% 114 70% 113 40% ofprobability 65% 100 65% 111 the Cumulative Frequency Cumulative Frequency 1500 60% 100 800 60% 110 55% 100 55% 109 probability Hits Hits 50% 100 50% 107 45% 100 600 45% 105 1000 40% 100 40% 100 35% 100 35% 100 30% 100 400 30% 100 25% 100 25% 100 500 20% 100 20% 100 15% 100 200 15% 100 10% 99 10% 100 5% 97 5% 100 0 0% 100 0 0% 91 100 110 120 130 95 100 105 110 115 Distribution (start of interval) Distribution (start of interval) © 2009 Hulett & Associates, AcumenPM
  11. 11. Assigning More than One Risk to an Activity• If more than one risk is acting on an activity, the resulting ranges are the multiplication of the factors• The activity duration range is derived from the risk factors that affect the risk – Model how the activity duration range is generated – Focus on the causes of activity duration ranges © 2009 Hulett & Associates, AcumenPM
  12. 12. Two Risks affect One Activity using Factors that Occur 100% 0040 - T echnology Design : Duration 100% 144 95% 130 90% 127 140 85% 124 80% 123 120 75% 121 70% 119Range 100 65% 118 Cumulative Frequency 60% 117from 90 to 55% 116 Hits150 days, 80 50% 115 45% 114Peak about 60 40% 113 35% 111113 days 30% 110 40 25% 109 20% 108 15% 106 20 10% 104 5% 102 0 0% 93 100 110 120 130 140 Distribution (sta rt of inte rva l) © 2009 Hulett & Associates, AcumenPM
  13. 13. Two Risks with Less than 100% Probability Affecting one Activity 0040 - T echnology Design : Duration 1100 100% 144 95% 123The spike at 1000 90% 119 85% 116100 days 900 80% 113 75% 111represents (1) 800 70% 110the likelihood 700 65% 108 Cumulative Frequency 60% 106that neither risk 600 55% 104 Hits 50% 102occurs and (2) 500 45% 101the chance that 400 40% 100 35% 100100 days is 300 30% 100 25% 100picked when 200 20% 100one or both 100 15% 100 10% 99occur 5% 97 0 0% 91 100 110 120 130 140 Distribution (sta rt of inte rva l) © 2009 Hulett & Associates, AcumenPM
  14. 14. Risk Factors Model How Correlation Occurs Coefficients are Calculated (1) Risk #1 P = 50%, Factors .95, 1.05, 1.15 Activity A Activity B Activities A and B Correlation is Calculated to be 100% © 2009 Hulett & Associates, AcumenPM
  15. 15. Risk Factors Model How Correlation Occurs Coefficients are Calculated (2) Risk #2 Risk #1 Risk #3 P = 25%, Factors P = 50%, Factors P = 45%, Factors .8, .95, 1.05 .95, 1.05, 1.15 1.0, 1.1, 1.2 Activity A Activity B Activities A and B Correlation is Calculated to be 48% Correlation is modeled as it is caused in the project Correlation coefficients are generated, not guessed © 2009 Hulett & Associates, AcumenPM
  16. 16. Sensitivity to the Risk FactorsThe tornadodiagramfocuses onrisks, notactivities © 2009 Hulett & Associates, AcumenPM
  17. 17. Simple 2-Stage Space Vehicle Schedule Software used: Pertmaster v. 8 © 2009 Hulett & Associates, AcumenPM
  18. 18. Case Study: Simple Space Vehicle Development Schedule• 87 month schedule• 11 work activities linked, 3 major milestones• Beginning 3 March 2008• PDR on 11 September 2009• CDR on 3 June 2011• Delivery to launch site 12 June 2015 © 2009 Hulett & Associates, AcumenPM
  19. 19. Two Types of Risk• Background risk based on typical general risk, estimating error – Used Quick Risk of -5% and +10%• Discrete risks derived from Risk Register – Summarized from detailed Risk Register – These have a probability of occurring and an impact on specific activities if they do – Parallel to their Risk Register information – Risk Register is used in data collection © 2009 Hulett & Associates, AcumenPM
  20. 20. Standard 3-point Range Representing Schedule Estimating ErrorBackgroundrisk:Optimistic -5%Pessimistic+10% © 2009 Hulett & Associates, AcumenPM
  21. 21. Results withSchedule Estimating Error Only Spacecraft Program Entire Plan : Finish Date 100% 30/Dec/15 95% 27/Oct/15 400 90% 15/Oct/15 85% 07/Oct/15 80% 30/Sep/15 Deterministic: 75% 24/Sep/15 12JUN15 is <1% 300 70% 18/Sep/15 Cumulative Frequency 65% 14/Sep/15 60% 09/Sep/15 P-80 is 30SEP15, 55% 04/Sep/15 about 3.5 months Hits 200 50% 01/Sep/15 45% 26/Aug/15 later than planned 40% 21/Aug/15 35% 18/Aug/15 Spread from P-5 to 30% 12/Aug/15 P-95 is 5JUL15 to 25% 07/Aug/15 100 20% 31/Jul/15 27OCT15 for 3.7 15% 24/Jul/15 10% 17/Jul/15 months 5% 06/Jul/15 0 0% 14/May/15 31/May/15 08/Sep/15 17/Dec/15 Distribution (start of interval) © 2009 Hulett & Associates, AcumenPM
  22. 22. Risk Analysis on Space Vehicle Project Risk Factors are from Risk Register Time Impact Range Cost Impact Range Probability Minimum Most Likely Maximum Minimum Most Likely MaximumRequirements have not been  30% 95% 105% 120%decidedSeveral alternative designs  60% 95% 100% 115%consideredNew designs not yet proven 40% 96% 103% 112%Fabricaton requires new  50% 96% 105% 115%materialsLost know‐how since last full  30% 95% 100% 105%spacecraftFunding from Congress is  70% 90% 105% 115%problematicSchedule for testing is  100% 100% 120% 130%aggressiveCost Risk is based on immature  100% 95% 105% 110%data © 2009 Hulett & Associates, AcumenPM
  23. 23. Mapping Risks to Activities (1) FS Requirements FS Test FSRisk Preliminary FS Final Design Definition Fabrication Engine DesignRequirements Not XCompleteAlternative Designs XPossibleDesigns Not Proven XNew Materials in XFabricationLost Know-How XFunding Problematic X X X XTesting Schedule XAggressiveCost Estimate isbased on Immature X X X X XData © 2009 Hulett & Associates, AcumenPM
  24. 24. Mapping Risks to Activities (2) US US Final IntegratioRisk Preliminary US Fabrication US Test Integration Design n Testing DesignRequirements NotCompleteAlternative Designs XPossibleDesigns Not XProvenNew Materials in XFabricationLost Know-How X XFunding X X X X X XProblematicTesting Schedule X XAggressiveCost Estimate isbased on Immature X X X X X XData © 2009 Hulett & Associates, AcumenPM
  25. 25. Results Adding Risk Factors to the Background Risk Spacecraft for PMChallenge 2009 Entire Plan : Finish Date 100% 03/May/17 350 95% 05/Oct/16 90% 11/Aug/16Baseline 12JUN 15 300 85% 01/Jul/16 80% 26/May/16is only 3% likely 75% 02/May/16 250The 80th percentile 70% 06/Apr/16 65% 15/Mar/16(P-80) is 26MAY16, 60% 24/Feb/16 Cumulative Frequency 20011.5 months later 55% 04/Feb/16 Hits 50% 15/Jan/16Spread P-5 to P-95 150 45% 30/Dec/15 40% 16/Dec/15is 13JUL15 to 35% 01/Dec/155OCT16, for 15.5 100 30% 16/Nov/15months 25% 02/Nov/15 20% 15/Oct/15 15% 25/Sep/15 50 10% 27/Aug/15 5% 13/Jul/15 0 0% 21/Jan/15 20/Feb/15 08/Sep/15 26/Mar/16 12/Oct/16 30/Apr/17 Distribution (start of interval) © 2009 Hulett & Associates, AcumenPM
  26. 26. Activity Tornado Chart from All-In Simulation Spacecraft for PMChallenge 2009 Duration Sensitivity 00025 - US Fabrication 81% Risky Activities: 80% Fabrication, 00011 - FS Fabrication Integration, Final 00028 - Integration 78% Design, Preliminary 00009 - FS Final Design 76% Design, Testing 76% This is the typical 00023 - US Final Design sensitivity analysis of00021 - US Preliminary Design 69% 3-point estimating00007 - FS Preliminary Design 69% 00012 - Test FS Engine 63% 00029 - Integration Testing 62% 00026 - US Test 61% © 2009 Hulett & Associates, AcumenPM
  27. 27. Risk Factor Tornado from All-In Simulation Driving Schedule Risk Factors 6 - Funding from Congress is problematic 4 - Fabricaton requires new materials 3 - New designs not yet proven The main RISK, 7 - Schedule for testing is aggressive however, is funding from Congress, which5 - Lost know-how since last full spacecraft affects all activities. This is the main risk to 2 - Several alternative designs considered mitigate, if possible 1 - Requirements have not been decided 0.00 0.20 0.40 0.60 0.80 Correlation © 2009 Hulett & Associates, AcumenPM
  28. 28. Contribution of Each Risk to the Time Contingency (1) Explain the Contingency to the P-80 P-80 Date Contribution of RiskAll Risks In 26-May-16 Days Saved % of Contingency Specific Risks Taken Out in OrderFunding Risk 22-Jan-16 125 36%Testing Schedule is Aggressive 1-Dec-15 52 15%Design Requires New Materials 28-Oct-15 34 10%New Design Risk 15-Oct-15 13 4%Alternative Design Risk 6-Oct-15 9 3%Requirements Risk 1-Oct-15 5 1%Lost Know How Risk 30-Sep-15 1 0% Background Schedule Estimating RisksBackground Risk 12-Jun-15 110 32% Total Contingency 349 100% © 2009 Hulett & Associates, AcumenPM
  29. 29. Contribution ofEach Risk to the Time Contingency (2) g g 100% 90% 26/May /16 01/Dec /15 12/J un/15 01/O c t/15 30/Sep/15 06/O c t/15 16/O c t/15 28/O c t/15 20/J an/16 80% 70% Cum ulative P robability 60% 50% 40% 30% 20% 10% 0% 06/ Apr/ 15 15/ Jul/ 15 23/ Oct/ 15 31/ Jan/ 16 10/ May/ 16 18/ Aug/ 16 26/ Nov/ 16 06/ Mar/ 17 © 2009 Hulett & Associates, AcumenPM
  30. 30. Resources and CostEstimate is$6.86 billion © 2009 Hulett & Associates, AcumenPM
  31. 31. Cost Risk Results Spacecraft for PMChallenge 2009 Entire Plan : Cost 100% $9,283,008,684 95% $8,429,356,166 650 90% $8,234,937,806Baseline $6.86 billion 600 85% $8,088,750,149is only 5% likely 550 80% $7,976,966,619 75% $7,890,603,866 500The 80th percentile 70% $7,813,239,105 450 65% $7,749,200,097(P-80) is $7.98 B for 60% $7,687,432,085 Cumulative Frequencya $1.1 B contingency Hits 400 55% $7,630,117,222 350 50% $7,568,332,545Spread P-5 to P-95 300 45% $7,514,273,968is $6.86 to $8.43, for 250 40% $7,452,396,460 35% $7,391,997,593$1.57 B 200 30% $7,331,963,666 25% $7,258,107,546 150 20% $7,188,049,098 100 15% $7,101,752,271 10% $7,007,130,725 50 5% $6,861,086,752 0 0% $6,189,493,454 $7,000,000,000 $8,000,000,000 $9,000,000,000 Distribution (start of interval) © 2009 Hulett & Associates, AcumenPM
  32. 32. Contribution ofEach Risk to the Cost Contingency Contributions of Individual Risks to Cost RiskAll Risks $ millionsCost Risk is based on immature data 287Funding from Congress is problematic 277Fabricaton requires new materials 168Schedule Estimate inaccurate 110Schedule for testing is aggressive 63New designs not yet proven 31Lost know‐how since last full spacecraft 2Several alternative designs considered 1Requirements have not been decided 0 © 2009 Hulett & Associates, AcumenPM
  33. 33. Scatter Diagram of Time and Cost Spacecraft for PMChallenge 2009 Deterministic Point Inside both limits Outside both limits 3%There is a 94% $9,200,000,000 1% 94%chance of $9,000,000,000overrunning both $8,800,000,000cost and $8,600,000,000schedule $8,400,000,000Notice the slope $8,200,000,000of the scatter – $8,000,000,000 Entire Plan: Costtime drives cost $7,800,000,000in this model $7,600,000,000 $7,400,000,000 $7,200,000,000 $7,000,000,000 5% $6,800,000,000 $6,861,500,000 $6,600,000,000 $6,400,000,000 2% 12/ Jun/ 15 3% $6,200,000,000 20/Feb/15 31/May/15 08/Sep/15 17/Dec/15 26/Mar/16 04/Jul/16 12/Oct/16 20/Jan/17 30/Apr/17 Entire Plan: Finish © 2009 Hulett & Associates, AcumenPM
  34. 34. Probabilistic Cash Flow Resource Flow for Cost Filter: Entire Plan Mean P20 P80This monthly 9,000,000,000probabilistic cash 8,000,000,000flow can becompared to the Deterministic Cost: $6,861,500,000 7,000,000,000budget to adjust the 6,000,000,000spending patterns Cu m u lative 5,000,000,000when considering D eterm inis tic F inis h: 12/J un/15risk 4,000,000,000 3,000,000,000 2,000,000,000 1,000,000,000 0 26/ Jul/ 08 11/ Feb/ 09 30/ Aug/ 09 18/ Mar/ 10 04/ Oct/ 10 22/ Apr/ 11 08/ Nov/ 11 26/ May/ 12 12/ Dec/ 12 30/ Jun/ 13 16/ Jan/ 14 04/ Aug/ 14 20/ Feb/ 15 08/ Sep/ 15 26/ Mar/ 16 12/ Oct/ 16 30/ Apr/ 17 Time © 2009 Hulett & Associates, AcumenPM
  35. 35. Probabilistic Cash FlowCompared to Planned © 2009 Hulett & Associates, AcumenPM
  36. 36. Summary (1)• The focus is on the risks, not their impact• Risks “explain” the need for a contingency• Management appreciates this focus on risks• Risk interviews are conducted at 10,000 foot level, where people typically think of risk• Interviews go faster, stick to the substance © 2009 Hulett & Associates, AcumenPM
  37. 37. Summary (2)• Use Risk Register for quantitative analysis• Specific risks can be quantified and assigned to schedule activities – Quantification is probability and impact – A risk can affect several activities – An activity can be affected by several risks• Risk Factors can be combined with other more traditional approaches such as 3-point estimates for background risk or probabilistic branching © 2009 Hulett & Associates, AcumenPM
  38. 38. Summary (3)• Schedule uncertainty creates cost uncertainty• Analysis of cost simultaneously with time requires inserting the budget/resources into the schedule and simulating both together• More accurate cost risk analysis and full appreciation of the role of schedule risk in creating cost risk © 2009 Hulett & Associates, AcumenPM
  39. 39. Using the Risk Register in Integrated Cost/Schedule Risk Analysis with Monte Carlo Simulation David T. Hulett, Ph.D. Hulett & Associates, LLC Dr. Dan Patterson, PMP Acumenpm NASA PM Challenge Daytona Beach, FL February 24-25, 2009 © 2009 Hulett & Associates, AcumenPM
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