More Related Content Similar to QRA for overall project risk - Dr David Hillson (20) More from Association for Project Management (20) QRA for overall project risk - Dr David Hillson1. © Copyright 2015-16, The Risk Doctor Partnership, Slide 1
Assessing overall project risk
with quantitative risk analysis
Presented by
Dr David Hillson
HonFAPM, PMI Fellow, FIRM, FCMI
The Risk Doctor The Risk Doctor Partnership
david@risk-doctor.com www.risk-doctor.com
11 February 2016, London, UK
2. © Copyright 2015-16, The Risk Doctor Partnership, Slide 2
Two key questions
1. How risky is
your project?
2. How do you
know?
3. © Copyright 2015-16, The Risk Doctor Partnership, Slide 3
How to answer these questions?
Two levels of question & answer:
1. Project Manager:
Q: What are the risks in my project?
A: Individual risks (see Risk Register & risk reports)
2. Project sponsor/project owner/customer:
Q: What is the riskiness of this project?
A: Overall project risk (????)
4. © Copyright 2015-16, The Risk Doctor Partnership, Slide 4
What is “individual risk”?
APM PRAM Guide (2004), BoK6 (2012)
an uncertain event or set of circumstances
that, should it occur, will have an effect on
achievement of one or more of the project’s
objectives.
PMI Practice Standard for Project Risk
Management (2009), PMBoK® Guide (2013)
an uncertain event or condition that, if it
occurs, has a positive or negative effect on a
project’s objectives.
5. © Copyright 2015-16, The Risk Doctor Partnership, Slide 5
What is “overall project risk”?
APM PRAM Guide (2004), BoK6 (2012)
Overall risk is the exposure of stakeholders to
the consequences of variation in outcome,
arising from an accumulation of individual risks
together with other sources of uncertainty.
PMI Practice Standard for Project Risk
Management (2009), PMBoK® Guide (2013)
Overall project risk represents the effect of
uncertainty on the project as a whole. It is
more than the sum of individual risks on a project.
6. © Copyright 2015-16, The Risk Doctor Partnership, Slide 6
Is this in scope for project
managers?
Project Manager is responsible for identifying,
assessing and managing specific uncertainties
within the project (individual risks)
Project Manager is accountable to Project
Sponsor and stakeholders for overall risk
exposure of the project (overall project risk)
Yes, but how?
7. © Copyright 2015-16, The Risk Doctor Partnership, Slide 7
Managing overall project risk
Identifying sources of overall project risk
Quantifying overall project risk
Responding to overall project risk
Reporting & monitoring overall project risk
8. © Copyright 2015-16, The Risk Doctor Partnership, Slide 8
“Exposure of stakeholders to variation in outcome”
“Effect of uncertainty on the project as a whole”
Key questions with quantitative answers:
How likely is this project to succeed (or fail)?
What is potential range of variation in outcome?
Standard Monte Carlo simulation answers these
Quantifying overall project risk
9. © Copyright 2015-16, The Risk Doctor Partnership, Slide 9
Quantifying overall project risk
Cumulativeprobability(%)
TARGET
£2.2M
23% CHANCE OF MEETING
TARGET
EXPECTED
VALUE
£2.35M
85% CHANCE OF
COSTING £2.45M
RANGE OF UNCERTAINTY (5:95) = £0.5M
0
10
20
30
40
50
60
70
80
90
100
Cumulativeprobability(%)
0
10
20
30
40
50
60
70
80
90
100
Predicted total project cost
£2.0M £2.2M £2.4M £2.6M£2.1M £2.7M £2.8M£2.5M£2.3M
An example Monte Carlo output (cost)
10. © Copyright 2015-16, The Risk Doctor Partnership, Slide 10
“How risky is this project?”
Quantitative answers:
How likely is this project to succeed?
Probability of meeting £2.2M target = 23%
Expected value = £2.35M (+7%)
What is potential range of variation in outcome?
Total potential range = £0.5M (= 22% of project value)
Realistic best case (5th percentile) = £2.1M (– 4%)
Realistic worst case (95th percentile) = £2.6M (+18%)
Quantifying overall project risk
An example Monte Carlo output (cost)
11. © Copyright 2015-16, The Risk Doctor Partnership, Slide 11
Time
Cost
PLANNED
PROJECT
START
ZERO
MAXIMUM
TOTAL
COST
LATEST
PROJECT
END
WORST CASE:
MAXIMUM COST &
LATEST END
MINIMUM
TOTAL
COST
EARLIEST
PROJECT
END
BEST CASE:
MINIMUM COST &
EARLIEST END
INDIVIDUAL
COST-TIME
RESULT
EXPECTED
PROJECT
END
EXPECTED
TOTAL
COST
EXPECTED CASE
MEAN COST & TIME
Quantifying overall project risk
Another example Monte Carlo output (cost/time)
12. © Copyright 2015-16, The Risk Doctor Partnership, Slide 12
Reporting overall project risk
Update at key milestones, tell stakeholders:
Current level of overall project risk
Major causes of overall project risk
Key responses underway or planned
Trend in overall project risk since project started
Predicted level at next reporting point
Monitor changes and trends
No common practice formats
Suggested dashboard components
13. © Copyright 2015-16, The Risk Doctor Partnership, Slide 13
Overall Project Risk Barometer
PROBABILITYOFPROJECTSUCCESS
0%
50%
100%
80%
PROJECT
START
PROJECT
END
REVIEW 1 R2 R3 R4 MILESTONE
1
R5 R6 MS2 R7 R8 MS3 R9 R10 R11
TIME
NOW
PROBABILITYOFPROJECTSUCCESS
0%
50%
100%
80%
TREND
LINE
14. © Copyright 2015-16, The Risk Doctor Partnership, Slide 14
Overall Project Risk Barometer
+ variability
PROBABILITYOFPROJECTSUCCESS
0%
50%
100%
80%
REVIEW 1 R2 R3 R4 MILESTONE
1
R5 R6 MS2 R7 R8 MS3 R9 R10 R11
TIME
NOW
TREND
LINE
PROBABILITYOFPROJECTSUCCESS
0%
50%
100%
80%
PROJECT
START
PROJECT
END
REVIEW 1 R2 R3 R4 MILESTONE
1
R5 R6 MS2 R7 R8 MS3 R9 R10 R11
VARIABILITY
VARIABILITY
TARGET
UNDER
TARGET
OVER
TARGET
TARGET
UNDER
TARGET
OVER
TARGET
TREND
LINE
MIN
EXP
MAX
15. © Copyright 2015-16, The Risk Doctor Partnership, Slide 15
Cost/time variability
from “eyeball/football plot”
Time
CostTARGET COST
TARGET
DATE
REVIEW 1
REVIEW 3
REVIEW 2
16. © Copyright 2015-16, The Risk Doctor Partnership, Slide 16
“Eyeball/football” orientation
indicates risk type
Cost & time risk are
positively correlated
and equally balanced
Time
Cost
EARLY LATE
UNDERSPENDOVERSPEND
17. © Copyright 2015-16, The Risk Doctor Partnership, Slide 17
Cost & time risk
are positively
correlated,
equally balanced
Cost & time risk
are negatively
correlated,
equally balanced
Major risk is to
time, cost not
affected
significantly
Major risk is to
cost, time not
affected
significantly
Time
Cost
EARLY LATE
UNDERSPENDOVERSPEND
Time
Cost
EARLY LATE
UNDERSPENDOVERSPEND
Time
Cost
EARLY LATE
UNDERSPENDOVERSPEND
Time
Cost
EARLY LATE
UNDERSPENDOVERSPEND
“Eyeball/football” orientation
indicates risk type
19. © Copyright 2015-16, The Risk Doctor Partnership, Slide 19
Next steps for practitioners
and the profession
Risk matters, including both individual risks
and overall project risk
Both need to be managed proactively
Best-practice needs to evolve to cover both
PM standards must provide guidance for both
We must deal equally with the risks in the project
and the riskiness of the project
20. © Copyright 2015-16, The Risk Doctor Partnership, Slide 20
Final questions
How risky is your project?!
How do you know??!!
Do you include overall project risk
in your thinking & practice?
If not, why not?
Would it be possible?
What changes are required?
22. © Copyright 2015-16, The Risk Doctor Partnership, Slide 22
For further information
Dr David Hillson
The Risk Doctor Partnership
+44(0)7717.665222
david@risk-doctor.com
www.risk-doctor.com
YouTube.com/RiskDoctorVideo
11 February 2016, London, UK
23. This presentation was delivered
at an APM event
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website www.apm.org.uk/events