Creating and managing risk adjusted project schedules is an important step of schedule risk analysis. Risk adjusted project schedule is obtained based on quantitative risk analysis, particularly Monte Carlo schedule risk analysis. Risks and uncertainties can lead to changes in duration and cost of schedule activities; as a result schedule with risks and uncertainties may look significantly different than original project schedule. Risk adjusted project schedule is a 'realistic project schedule', which should be managed. For more information about risk adjusted project schedules and project risk analysis in general please visit http://www.intaver.com.
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Project Risk Analysis: Creating and Managing Risk Adjusted Project Schedules
1. Risk Adjusted Project Schedules
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2. Objectives
• Goal to create realistic or “credible” project plans
• Identify and manage critical risks
• Monte Carlo risk analysis
• Calculate model and risk appropriate schedule margin and
contingency reserve
Risk adjusted project plans allow projects to
withstand impact of foreseen and unforeseen
circumstances
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3. Sources of Risk
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Discrete Risks
•Risk events that can directly impact project objectives Technical, Schedule,
Cost.
•Characterized by probability of occurrence and impacts and period of exposure
(sunrise and sunset)
•Are “reducible” – they can be managed or eliminated give sufficient effort
Uncertainties
•Natural variance caused by randomness in all processes
•Characterized using statistical distributions that capture most likely and
boundary estimates (Low and High)
•Are “irreducible” – they cannot be reduced
4. Building Risk Adjusted Plans
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1 Create WBS. WBS is primarily developed using Scope of Work.
2 Create Integrated Management Plan. IMP provides high level
structure for program deliverables, technical measures of success
as well as cost and schedule estimates
3 Analyze and manage risks. Identify, assess, and manage reducible
risks for every WBS item in the plan.
5. Manage Discrete Risks
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1. Identify Risks
o What events could impact key objectives
1. What are the impacts?
o Assess the impact of a risk event occurring on technical, cost
and schedule measures.
1. What can you do about it?
o What is your risk strategy: Avoid, Transfer, Mitigate, or Accept
o If mitigate, create mitigation plan with activities that will reduce
probability and impact.
o Residual risk (cost, schedule) added to contingency reserve
6. Assign Risks to WBS
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Drag selected risk and drop it on the
task; define risk probabilities and
impacts
8. Risk Planning
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• Mitigation activities for each risk are
modeled to waterfall chart
• Mitigation activities are added to the
schedule with associated dates, costs
and durations
• Successful completion of mitigation
activities in schedule are tracked and
updated in risk register.
9. Contingency and Management Reserves
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• Contingency and Margin cover “known unknowns”
o Residual risk from known risks (manageable)
o Natural variance in project performance (unmanageable)
o Does not cover scope changes
• Management Reserves cover unknown unknowns
o Risks not previously identified, etc.
10. Managing Irreducible Risk
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• Modeling irreducible risk is used to develop Schedule
margins for the Program
• Uncertainties are modeled using 3 pt. estimates (L, ML, H)
• Use all available information including SME opinion,
previous analogous projects
• Uncertainty should be added to all tasks in relation to their
known and forecasted level of uncertainty.
11. Monte Carlo is Essential
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Monte Carlo Simulations
12. Contingency and Management Reserves
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$Cost
Time
Contingency
Margin
MR
P80
P80
x
x
13. Unmanaged Risks and Contingency
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• Impact of unmanaged and
residual risks added to
contingency
• Contingency is difference
between baseline and level
of confidence P-?
• Calculated with Monte Carlo
simulation
14. Residual risk
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$
Pre-Mitigation
Original
Estimates
With Risk
CR
$
Post-Mitigation
Margin
Pre-Mitigation Post-Mitigation
Residual risk is accounted for in contingency and margin
15. Schedule Margin
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• Deterministic Plan = 330 days
• With uncertainties and residual
risk P80 = 353 days
• Schedule Margin = P80 – DP =
33 days
17. Cost Contingency
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Forecasts for cost and schedule now account for
risks and uncertainties and are integrated into plan
Max
P50
Low
18. When is this appropriate?
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• Always perform risk management as appropriate for the
size and importance of your project.
• Scale with Project
– Small, Routine: Qualitative
– Large, Complex: Quantitative (Monte Carlo)
• Set thresholds
– US Federal
– $20M Perform EV and RM evidenced by reports
– $50 Certified EV and RM systems
19. Summary
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Program managers can increase confidence of
successfully delivering programs on time and budget
by:
•Managing and controlling risks (reducible)
•Accounting for uncertainties and residual risk
integrating sufficient schedule margin and
management reserves
•This creates a project plan that is….
Risk adjusted plans and protects key program objectivesRisk adjusted plans and protects key program objectives