Discuss the value of applying risk management to project planning and scheduling.

1. THE VALUE
OF PROJECT
RISK MANAGEMENT
WEDNESDAY FEBRUARY 25, 2015

2. 0
100
ProjectPredictability
Risk Implementation Maturity
 Improve project delivery
 Improve communications
 Better balance strategic
needs with capital planning
Goal for Today
Discuss Value of Applying Risk Management to Projects
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3. Agenda
Introductions
What is project risk
Intro to project risk management
The value of risk management
Deploying a risk management process
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4. INTRODUCTIONS
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5. Presenters
• Dax Ponce de Leon, PMP, LEED AP BD+C
– 12 years experience in project management, project controls, planning, scheduling,
risk management
• Dane McBaine, PMP, LEED AP
– 11 years experience, including in risk management process on large capital program
• Herschel Baxi, PMP, LEED AP
– 20 years experience, including in deployment of risk management process on large
capital program
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6. About PMA Consultants
Top 50 ENR Program /
Construction Management Firm
Specializing in owner
representation, project
controls, claims management,
and project risk management Projects in rail, ports, aviation, infrastructure, oil/gas,
pharmaceutical, higher education
RISK EXPERIENCE
PMA CONSULTANTS LLC | 6
15YEARS
250RISK ASSESSMENTS
$50BPROJECT VALUE

7. WHAT IS PROJECT RISK
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8. Project Risk
Uncertain events that, if occurring, have an impact on
one or more project objectives such as scope,
schedule, cost, and quality
Project risk collectively causes fluctuation in capital
expenditure and forecasting
SOURCE: PMBOK 5TH ED. PMA CONSULTANTS LLC | 8

9. How Does Risk Affect Projects?
REASONS FOR COST OVERRUN
60%
55%
40%
36%
32%
19%
6%
4%
2%
26%
0% 10% 20% 30% 40% 50% 60% 70%
Material Price Escalation
Poorly Defined Scope
Contractual Disputes
Time Delay
Design Creep
Achieving Productivities
Lack of Approvals
Weather
Industrial Relations
Other
REASONS FOR SCHEDULE DELAY
57%
57%
36%
34%
21%
17%
15%
13%
2%
19%
0% 10% 20% 30% 40% 50% 60%
Poorly Defined Scope
Design Creep
Lack of Approvals
Contractual Disputes
Weather
Time Delay
Achieving Productivities
Material Price Escalation
Commissioning Process
Other
SOURCE: KPMG GLOBAL CONSTRUCTION SURVEY 2008 PMA CONSULTANTS LLC | 9

10. Risk Response Strategies
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11. INTRO TO PROJECT RISK
MANAGEMENT
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12. Project Risk Management Process
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PROJECT
COMMUNICATION
Risk
Management
Planning
Review Process
Risk
Identification
Risk
Quantification
Risk Response
Planning
Summarize
Risk Monitoring
& Control
Comprehensive strategy
for identifying and
controlling risk on a
project

13. Identify Prioritize Model
Summarize
SimulateRange
 Possible risks &
response plans
 Critical & risk-
sensitive
sequences
 Cost breakdown,
variables,
distributions
 Activity durations
 Cost variables: scope,
price, productivity
 PertMaster,
NetRisk, @Risk
 Report, graphics, options
to mitigate risks
 Recommended
cost/schedule
contingencies
 Estimate issues,
possible risks,
response plans
Review
 Scope, assumptions
 Schedules, estimates
 Execution Plans &
strategy
Risk
Management
Plan
QUALITATIVE RISK ANALYSIS QUANTITATIVE RISK ANALYSIS
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Typical Risk Assessment Process

14. Results of Quantitative Cost Risk Analysis
Objective: evaluate likelihood of completing project within a certain cost
Current project estimate (MM) $10
Methodology: Cost Risk Analysis
Likelihood of completion at $10MM 10%
Project cost for 90% confidence (MM) $15
Output: project contingency informs capital planning
New project contingency (MM) $5
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15. Results of Quantitative Schedule Risk Analysis
Objective: evaluate likelihood of completing project within a certain time
Current project schedule (months) 24
Methodology: Schedule Risk Analysis
Likelihood of completion in 24 months 24%
Project duration for 90% confidence (months) 28
Output: project cash flow informs capital planning
Revised schedule contingency (months) 4
Adjust project cash flow for additional 6 months
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16. Distribution of Project Completion Date
The project schedule deterministic
date of 16-Sep-14 is in the 24th
percentile of the simulation results
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17. A Risk-Focused Mindset Improves Project Delivery
 Clarity in scope assumptions
 Better estimates
 Better schedules
 Improved project controls
Project Document Review
 Focus on project agenda
 Recognition and
transparency in project
challenges
 Early risk warnings and
mitigation strategies
 Brainstorming and
innovative solutions
 Risk Register as a project
team’s tool
 Key stakeholders to the table
Qualitative Assessment
 Risk-based, quantified
project contingencies
 Support to project change
management
Quantitative Analysis
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18. THE VALUE OF
RISK MANAGEMENT
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19. Project Contingency and Capital Planning
Source: Flyvbjerg, B. - Survival of the Unfittest, 2009 PMA CONSULTANTS LLC | 19
45%
34%
20%
0%
10%
20%
30%
40%
50%
RailBridges and TunnelsRoad
Average Cost Overrun
Budget overruns contingency,
which impacts capital planning
In any given period, inadequate or
excessive capital dollars are reserved

20. Risk Workshops – Multiple Benefits
TRANSPARENCY
COLLABORATION
ACTION
 Early risk warnings
and opportunities
 Improves other
project management
processes
 Improves project
communication
 Collaborative
problem solving
 Include all
stakeholders
 No agenda other
than project success
 Added transparency
in project challenges
Probabilistic
Simulation is only
one component
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21. Service
Provider
External
Stakeholders
Senior
Management
Business
Units
Project Risk Management Improves Communications
• Risk process – transparent,
collaborative, proactive
• Funding requests include clear view
of risks, impacts, and mitigation
strategies
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22. The Bottom Line - Improved Capital Planning
Strategic
Capital
Needs
Annual
Capital
Forecast
Judicious
Capital
Reserves
Reasonable
Annual
Spreads
Capital Project
Contingencies
Based on Cost
Risk Analysis
Project Cash
Flow Based
on Schedule
Risk Analysis
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23. DEPLOYING A RISK
MANAGEMENT PROCESS
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24. Need For A Flexible Project Risk Management Process
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Gradual change in
processes and
organization
Tailored to project size,
type, complexity
Need not be expensive!
Phased Scalable

25. Deploying A Risk Management Program
Risk Management
is implemented
piecemeal
Nurture Risk
Management
processes
Risk Management
becomes a
mature project
management
process
Start
here
“Low-hanging fruits”
Look for quick successes
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26. Independent Analyst vs. Self-Performed by ProjectTeam
• Independent Analyst can bring
– Unbiased perspective
– Outside perspective
– Cold-eyed review of project plan
– Standard process
• Usually, project members are willing to share concerns
more openly with an independent analyst
• In collaboration with project team, can help to identify
challenges
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27. Leveraging An Independent Analyst
Facilitate risk
assessments on larger,
complex projects
Drive adoption of
qualitative risk analysis
within project teams
(develop & maintain
risk registers)
Design, implement,
and hand-off a
comprehensive risk
management process
which is phased,
scalable, and robust
1 2 3
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28. Value of Applying a Project Risk Management Process
Strategic
Capital
Needs
Annual
Capital
Forecast
Judicious
Capital
Reserves
Reasonable
Annual
Spreads
Transparent, scalable,
collaborative risk
management process
improves project
predictability
Funding requests include
clear view of risks,
impacts, and mitigation
strategies
Balanced capital plans
0
100
ProjectPredictability
Risk Implementation Maturity
PMA CONSULTANTS LLC | 28
Service
Provider
External
Stakeholders
Senior
Management
Business
Units