Risk Reserve Management Model - A proposal for advance project control

1. - a proposal for advance project control -

2. • The intent of this paper is to introduce an alternative method in steps, to forecast how far the risk
reserve fund can be reduced or “drawdown” and at the same time, still ensure that adequate
money remains for the duration of the project.
• In order to effectively maintain adequate reserve fund, Manager, Cost Controller, Project Planner
and Project Manager must develop a plan together which defines the detailed parameter
necessary before make judgments.
• The plan, termed a Risk Reserve drawdown model, depicts what percentage of risk reserve fund
should be released in relation to the planned commitment of project resources.
• Term “Risk Reserve” are used because the plan only takes into account all known uncertain events
except show stoppers and game changers. With that as the case, the reflection of general
uncertainties, design allowance, cost escalation and fluctuations are excluded.
Disclaimer: The data used to support presentation here is taken from a dummy project, purposely created to support the presentation. It has no relation with
any company nor any project that has completed/currently going on.

3. We are using cumulative planned value of throughout the project execution to generate s-curve. The
breakdown of the project stages are depicted are overlaid.
Engineering
Procurement – Major Equipment
Procurement – Bulk Materials
Construction/Installation
Completion

4. Step 1:
• We are using Primavera Risk Analysis: Quantitative tab function to get the spread duration of
activities which risk is assigned to.
Disclaimer: The data used to support presentation here is taken from a dummy project, purposely created to support the presentation. It has no relation with any company nor any project that has completed or
currently going on.

5. Step 2:
• Using 3 points estimate of cost impact and @Risk functions, the desired confidence level (taking at
P90) for each risk is calculated using Monte Carlo simulation.
• This figure is divided to a period of activities and spread equally in accordance to which the period of
activities is effective.
• Run a cumulative balance risk exposure in percentage format and on monthly basis. Plot the date at
the same chart (see next slide)
Disclaimer: The data used to support presentation here is taken from a dummy project, purposely created to support the presentation. It has no relation with any company nor any project that has completed or
currently going on.
P90/Months

6. Disclaimer: The data used to support presentation here is taken from a dummy project, purposely created to support the presentation. It has no relation with any company nor any project that has completed or
currently going on.
Risk Reserve fund as a percent (%) of total planned value

7. Disclaimer: The data used to support presentation here is taken from a dummy project, purposely created to support the presentation. It has no relation with any company nor any project that has completed or
currently going on.
Engineering
Procurement – Major Equipment
Procurement – Bulk Materials
Construction/Installation
Completion
High reserve when project at Engineering stage.
Low reserve when project approaches completion .

8. • Management of risk reserve funds is a vital part of the project control effort. It is the responsibility
of project management to ensure that these funds are controlled and kept in sufficiently in
accordance with their intended purpose as documented in the project estimate.
• By analyzing the dependent of variance activities, and by utilizing a planned drawdown model and
commitment curve, this plan will provide project management with timely information and ensure
that adequate risk reserve funds are maintained throughout project lifecycle.