This document provides a 6-step process for building a risk-tolerant integrated master schedule (IMS) that increases the probability of program success. The steps include: 1) defining a work breakdown structure, 2) building an integrated master plan, 3) identifying reducible risks, 4) building the IMS, 5) adjusting for irreducible risks through schedule margin, and 6) establishing a performance measurement baseline including management reserve for latent risks. Key aspects include identifying reducible and irreducible risks, using techniques like Monte Carlo simulation to determine schedule margin for irreducible risks, and ensuring the IMS, performance measurement baseline, and risk registers are integrated.

1. BUILDING A RISK
TOLERANT IMS
Informing the Program Performance with Risk to Increase
the Probability of Program Success (PoPS)
1
Niwot Ridge, LLC
Safran Risk
Roadshow
McClean, VA
June 23, 2015

2. Increasing the Probability of Program
Success Means …
Risk
SOW
Cost
WBS
IMP/IMS
TPM
PMB
2
2

3. 6 Steps To Developing These Elements
Step Outcome
❶
Define
WBS
§ With SOW, SOO, ConOps, WBS, and other program documents, develop
CWBS of system deliverables and work processes to produce the program
outcomes.
§ Develop CWBS Dictionary describing scope of work and Criteria for the
successful delivery of these outcomes.
❷
Build IMP
§ Develop Integrated Master Plan (IMP), showing how each system element in
the CWBS moves through the maturation process at each Program Event.
§ Define Measures of Effectiveness (MOE) for each Accomplishment.
§ Define Measures of Performance (MOP) for each Criteria.
❸
Identify
Reducible
Risks
§ For each key system element in the CWBS, identify reducible risks, probability
of occurrence, mitigation plan, and residual risk in the Risk Register.
§ Risk mitigation activities placed in IMS and PMB to assure probability of
occurrence and probability of impact reduced.
§ For risks without mitigation plans, place budget for risk in Management
Reserve (MR) to be used to handle risk when it becomes an Issue.
C

4. Step Outcome
❹
Build the
IMS
§ Arrange Work Packages and Tasks in a logical network of increasing maturity
of the deliverables.
§ Define exit criteria for each Work Package to assess planned Physical Percent
Complete to inform BCWP using TPM, MOP, MOE, and Risk Reduction
activities in support of Accomplishments in the IMS.
❺
Adjust for
Irreducible
Risks
§ For irreducible risks in the IMS, use Reference Classes for Monte Carlo
Simulation anchored with Most Likely duration to calculate needed schedule
margin.
§ Assign schedule margin tasks in the IMS, to protect the key system elements,
per DI-MGMT-81861 guidance.
❻
Establish
PMB
§ Using risk adjusted IMS, calculate needed Management Reserve (MR) to
account for the latent risks in the Risk Register.
§ With deterministic IMS and its embedded Schedule Margin and Management
Reserve for latent risk, determine the resulting confidence level of the PMB.
6 Steps To Developing These Elements

5. The Source of All Risk is
Irreducible and Reducible Uncertainty
5

6. Connecting the Dots of a Credible PMB
6

7. The Risk Management Process
Anticipate
what can
go wrong
Communicate
Identify
Plan
Track
Control
Decide
what is
important
Plan the corrective actions
Correct any
deviations
Track all
actions
Analyze
7

8. Risk Register Connects the WBS to the
Cost and Schedule Impact of a Risk
¨ Risk ID traceable to IMS for schedule impacts
¨ WBS elements collect cost impact of risk
¨ Risk handling strategies connected to IMP, IMS,
WBS, SOW, and TPM measures
Communicate
Identify
Plan
Track
Control
Analyze
8

9. Programmatic and Technical
Compliance Measures of Risk
9
¨ Key Performance Parameters (KPPs) – represent a critical subset of
the performance parameters so significant that failure to meet the
threshold value of performance can be cause for the concept or
system selected to be reevaluated or the project to be reassessed or
terminated.
¨ Measures of Effectiveness (MOEs) – operational measures of
success closely related to the achievements of the mission or
operational objectives evaluated in the intended operational
environment, under a specific set of conditions (i.e., how well the
solution achieves the intended purpose).
¨ Measures of Performance (MOPs) – characterize physical or
functional attributes relating to the system operation, measured or
estimated under specified testing and/or operational environment
conditions.
¨ Technical Performance Measures (TPMs) – measure attributes that
determine how well a system or system element is satisfying or
expected to satisfy a technical requirement or goal.
Communicate
Identify
Plan
Track
Control
Analyze

10. Analyze Reducible and
Irreducible Risks
¨ Risk analysis answers the question “How big is the
risk?” by:
¤ Considering the likelihood of the root cause occurrence;
¤ Identifying the possible consequences in terms of
performance, schedule, and cost; and
¤ Identifying the risk level using the “Risk Reporting
Matrix”
10
Communicate
Identify
Plan
Track
Control
Analyze

11. Planning Reducible and Irreducible
Risk Response
¨ Risk mitigation planning answers the question “What
is the program’s approach for addressing this
potential unfavorable consequence?”
¨ One or more of these mitigation options may apply:
¤ Avoiding risk by eliminating the root cause and/or the
consequence,
¤ Controlling the cause or consequence,
¤ Transferring the risk,
¤ Assuming the level of risk and continuing on the current
program plan.
¤ Provide margin to cover the impact of the risk.
11
Communicate
Identify
Plan
Track
Control
Analyze

12. Implementing the Risk Plan
¨ Risk mitigation (plan) execution ensures successful risk
mitigation occurs.
¨ It answers the question – How can the planned risk
mitigation be implemented?
¤ Determining what planning, budget, and requirements and
contractual changes are needed,
¤ Providing a coordination vehicle for management and other
stakeholders,
¤ Directing the teams to execute the defined and approved
risk mitigation plans,
¤ Outlining the risk reporting requirements for on-going
monitoring, and
¤ Documenting the change history.
12
Communicate
Identify
Plan
Track
Control
Analyze

13. Tracking the Risk
¨ Risk tracking ensures successful risk mitigation. It
answers the question “How are things going?” by:
¤ Communicating risks to all affected stakeholders,
¤ Monitoring risk mitigation plans
¤ Reviewing regular status updates
¤ Displaying risk management dynamics by tracking risk
status within the Risk Reporting Matrix
¤ Alerting management as to when risk mitigation plans
should be implemented or adjusted.
13
Communicate
Identify
Plan
Track
Control
Analyze

14. Risk Control Processes
14
¨ The Risk Control function takes tracking status
reports for the watched and mitigated program risk
and decides what to do with them based on the
reported data. The general process of controlling
risks includes:
¤ Analyzing the status reports
¤ Deciding how to proceed
¤ Executing the decisions
Communicate
Identify
Plan
Track
Control
Analyze

15. 15 Performance Based Management(sm), Copyright ® Glen B. Alleman, 2012

16. Risk informing the PMB means have cost and
schedule margin to cover irreducible risks.
And having risk buy down activities to cover
reducible risks.
Any cost or schedule plan without Margin or
Reserve is late and over budget before you start
Cost and Schedule Margin16

17. Management Reserve
¨ Calculate total project management reserve required
based on
¤ Statistical
Modeling
¤ Past
Experience
0
500
1000
1500
2000
2500
3000
3500
4000
Jan Mar May Jul Sep Nov Jan Mar May
BCWS
Management
Reserve
Schedule
Reserve
BAC
Total
Funds
17

18. Management Reserve Calculation
Principles
¨ Management reserve (MR) is held for growth within the
currently authorized work scope, for rate changes, and
for other program unknowns. MR is not used to offset
accumulated overruns or underruns and it is not a
contingency budget than can be used for new work or
eliminated from the contract price during subsequent
negotiations. The management reserve budget
is not included as part of the Performance Measurement
Baseline (PMB). Source: ACQuipedia
¨ Operational Definition: Management Reserves (MR)
covers in-scope known reducible risks that were not
mitigated. It is for in-scope work that may or may not
materialize.
18

19. Monte Carlo Simulation of Unmitigated
Reducible Risk for MR
19
¨ Contract Budget
Base (CBB)
¨ IMS with
Unmitigated
Reducible Risk
¨ Management
decision of MR
Confidence of 80%.
¨ Difference is
Management
Reserve (MR)

20. Management Reserve Calculation
20

21. Management Reserve Strategy
0
200
400
600
800
1000
1200
Jan Mar May Jul Sep Nov Jan Mar May
Estimate based on
risk evaluation
baseline
Estimate based on
straight-line
21

22. Risk Metrics connected the IMS
WATCH DOMAIN
RISK*
Transition Thresholds
PROBLEM DOMAIN
Feb 96 Mar 96 Apr 96
Time
Pessimistic
Expected
Optimistic
MITIGATION
DOMAIN
Accept
12
10
8
6
4
2
May 96
Event #1 2 3 4 65
22

23. Risk Retirement Plan in the IMS
Time
Now
Es>mate
To
Comple>on
Risk
Exposure
Variance
Schedule
Risk
Variance
Plan
To
Comple>on
Actual
to-­‐date
0
5000
10000
15000
20000
25000
Jan
Mar
May
Jul
Sep
Nov
Jan
Mar
May
23

24. Schedule and Funding Reserve
0
500
1000
1500
2000
2500
3000
3500
4000
Jan
Mar
May
Jul
Sep
Nov
Jan
Mar
May
BCWS
Management
Reserve
Schedule
Reserve
BAC
Total
Funds
Delivery
Schedule
TIME
$$$
4500
Nego>ated
24

25. Monte Carlo Simulation for Irreducible
Duration Uncertainty
¨ Deterministic
schedule
completion date
¨ Probabilistic
completion date
¨ Difference is
schedule margin

26. 8/4/1908
Deterministic
Date
GA/RP
Irreducible Risks Mitigated With
Schedule Margin
26

27. Schedule Margin Calculation
27

28. Placement of Schedule Margin in Integrated
Master Schedule
28

29. Schedule Margin Burn Down Plan
29

30. Risk Exposure Tracking
Time
Now
Es>mate
To
Comple>on
Risk
Exposure
Variance
Risk
Schedule
Variance
Plan
To
Comple>on
Actual
to-­‐date
MRR
CPI
Good
Not
so
Good
0.8
0.9
1
1.1
1.2
1.3
1.4
0
5000
10000
15000
20000
25000
Jan
Mar
May
Jul
Sep
Nov
Jan
Mar
May
30

31. Reference class forecasting, or comparison class
forecasting, is the method of predicting the
future, through looking at similar past situations
and their outcomes.
Reference Class Forecasting31

32. 32

33. Reference Class Step By Step
From Nobel Prize to Project Management, Flyvbjerg, 2006
33

34. Reference Class Calibration
34
¨ Estimating in the
presence of
uncertainty
¨ Past performance
used to calibrate
future estimates
¨ Time phased
improvements in
upper and lower
bounds

35. Integrating the Cost, Schedule and Technical Risk
Cost, Schedule, Technical Model†
WBS
Task 100
Task 101
Task 102
Task 103
Task 104
Task 105
Task 106
Probability
Density
Function
§ Research the Project
§ Find Analogies
§ Ask Endless Questions
§ Analyze the Results
§ What can go wrong?
§ How likely is it to go wrong?
§ What is the cause?
§ What is the consequence?
Monte Carlo Simulation
Tool is Mandatory
1.0
.8
.6
.4
.2
0
Days, Facilities, Parts, People
Cumulative Distribution Function
35

36. With the Risk Adjusted PMB, we now need to
inform program performance (Earned Value)
comes next.
With reducible risk, the planned reduction of
risk, on the planned date, informs program
performance.
With irreducible risk, the schedule margin
reduction as planned informs program
performance
Connecting Risk and EV36

37. EV
Data
EV
Data
EV
Data
Putting this framework together with EV
Program
Manager
Func>onal
Managers
Work
Package
Managers
Individuals/
Team
Members
Iden>fy
Analyze
§ Review
§ Priori*ze
§ Evaluate
§ Classify
Track
Plan
• Approve
plans
• Recommend
ac*ons
• Develop
plans
risks
Top
N
risks
Top
N
risks
decisions
assign
responsibility
trends
risk
status
Control
• Integrate
• Repriori*ze
• Authorize
• Func*onal
area
resources
1
3
2
assign
non-­‐top
N
37

38. Connecting EV and Risk Management
38
¨ EV data is assigned to Tasks and Work Packages,
managed by CAMs and WP managers.
¤ They can review, prioritize, evaluate, classify the risks
they know well at the lowest level in the IMS.
¨ In the planning stages of the IMS (or BoE), risks are
revealed during the normal course of work
¤ Identifying and analyzing these risks, again falls on the
CAM and WP Managers.
¨ During the Tracking activities, risks are including the
in standard EVM performance assessment
¤ ETC, EAC, BCWR, and other going forward estimiates
1
2
3

39. With the Reducible and Irreducible risks
identified, analyzed, planned, tracked, and
controlled, we can now construct the picture
needed by the Program Manager to increase the
Probability of Success by producing the …
The Final Picture We Are Looking For39
Communicate
Identify
Plan
Track
Control
Analyze

40. This
chart
was
first
published
in
2004,
Dr.
David
Hillson,
“Combining
Earned
Value
Management
and
Risk
Management
to
Create
Synergy”,
www.risk-­‐doctor.com
… Forecast of the EAC and ECD of IMS with
Reducible and Irreducible Risk.
Expected Cost
40

41. 41
§ IMP/IMS Development and Execution
§ Earned Value Management Systems
§ Programmatic and Technical Risk Management
§ Proposal Management
§ DFARS Six Business Systems Integration
§ DCMA/DCAA Validation and Surveillance
glen.alleman@niwotridge.com
+1 303 241 9633