The document discusses risk event modeling as part of project risk management, focusing on identifying risks, their impacts, and using Monte Carlo simulations for risk analysis. It emphasizes the significance of understanding probabilities, psychological biases, and the influence of risk factors on project timelines and costs. Additionally, it outlines methods for eliciting expert judgment and strategies for risk mitigation, along with tools for analyzing and representing risk impacts.

1. Risk Event Modeling
Risk event modeling in part of Intaver
Institute’s presentations on project risk
management and risk analysis
Intaver Institute Inc.
303, 6707, Elbow Drive S.W, Calgary, AB, Canada
Tel: +1(403)692-2252
Fax: +1(403)459-4533
www.intaver.com

2. The Project Management Problem
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Many projects are unsuccessful!Many projects are unsuccessful!

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The Project Management Problem

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The Project Management Problem

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The Project Management Problem

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The Project Management Problem

7. Benefits
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8. Risk Event Modeling Workflow
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9. Risk Definition
• Risks
– Risks are “events” that have a probability of occurring during a project
– Risks are identified and assigned to tasks or resources
– Define impact of risks by assigning:
• Chance of occurrence
• Outcome (e.g. delay, increase in cost)
• Result (percentage or fixed value of outcome)
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10. What is Monte Carlo
Monte Carlo simulation is a mathematical method used in risk
analysis. Monte Carlo simulations are used to approximate the
distribution of potential results based on probabilistic inputs.

11. Monte Carlo Simulations
Input Parameters Output Parameters
Calculation
Engine
Critical Path
Scheduling
Engine
(
)
Task duration
cost, finish time,
etc.
cost, finish time,
etc.
Project duration

12. Monte Carlo Schedule Analysis
4 5 6321 7 7 82 3 654 1 4 5 632 7
8 9 10 11 12 13 14 15 16
1
2
3
4
5
6
7
Task 1
Task 2
Task 3

13. Two Approaches to Estimating Probabilities
• The relative frequency approach, where probability equals
the number of occurrences of specific outcome (or event)
divided by the total number of possible outcomes.
• The subjective approach represents an expert’s degree of
belief that a particular outcome will occur.

14. Two Approaches for Defining Uncertainties
• Distribution-based approach
• Event-based approach

15. Which Distribution Should Be Used?
Normal Triangual Uniform
Also useful:
• Lognornal
• Beta

16. Distribution Fitting

17. Before Eliciting Judgment You Need to Have:
• A clearly defined problem
• An identified list of risks, or a risk
breakdown structure, for the project
• A project schedule
• A clearly defined set of questions you will
ask experts
In addition, your team of experts should be aware
of any personal interest that expert may have
regarding particular issues. It helps to mitigate
motivational biases.

18. Psychological Factors
• Availability heuristic: people judge the probability of the
occurrence of events by how easily these events are brought to
mind.
• Anchoring heuristic: refers to the human tendency to remain close
to the initial estimate.
• Wishful thinking: when we overestimate the probabilities of
opportunities and underestimate the probabilities of risks.

19. Overestimating the Probability of Compound
Events
If the probability of a defect in a component is 20% and the
device uses three redundant components, the probability of the
defective device will be (0.2 * 0.2 * 0.2) = 0.008%.
People tend to think this number is much higher.

20. Ignoring Base-Rate Frequencies
• Historically, the probability that a particular
component will be defective is 1%.
• The component is tested before installation.
• The test showed that the component is defective.
• The test usually successfully identifies defective
components 80% of the time.
• What is the probability that a component is
defective?
The correct answer is close to 4%, however, most
people would think that answer is a little bit lower
than 80%.

21. Eliciting Judgment About Probabilities of
Single Events
• Pose a direct question: “What is the probability that the project
will be canceled due to budgetary problems?”
• Ask the experts two opposing questions: (1) “What is the
probability that the project will be canceled?” and (2) “What is
the probability the project will be completed?” The sum of
these two assessments should be 100%.
• Break compound events into simple events and review them
separately.

22. Probability Wheel
25% No delay of activity
35% 3 day delay of activity
40% 5 day delay of activity

23. Task Duration
4
8
12
16
20 100%
80%
60%
40%
20%
Frequency
Probability
2 3 4 5 6
(days)
Question: What is the chance that duration
is less than 3 days?
Eliciting Judgment: Probability Method

24. Eliciting Judgment: Method of Relative Heights
Task Duration
2
4
6
8
10
2 3 4 5 6
50%
40%
30%
20%
10%Frequency
Probability
(days)
Question: How many times the duration
will be between 2 and 3 days?

25. How Many Trials Are Required?
Huge number of trials (> 1000) usually does not increase
accuracy of analysis
• Incorporate rare events
• Use convergence monitoring

26. What Is The Chance That a Project Will Be on Time And Within
Budget?

27. Analysis of Monte Carlo Results
• Sensitivity and Correlations
• Critical Indices
• Crucial tasks
• Critical Risks
• Probabilistic Calendars
• Deadlines
• Conditional Branching
• Probabilistic Branching
• Chance of Task Existence

28. Analyze Results
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29. Result Gant
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When you have project
schedule and risk
breakdown structure ready
click here to perform Monte
Carlo simulations
When you have project
schedule and risk
breakdown structure ready
click here to perform Monte
Carlo simulations
RiskyProject employs
convergence monitoring
to ensure fast calculation
RiskyProject employs
convergence monitoring
to ensure fast calculation

30. Risk Register
Pre-mitigation Probability, Impact,
And Score
Pre-mitigation Probability, Impact,
And Score
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31. Result Gantt Chart
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White bars represent
original project
schedule (no risks)
White bars represent
original project
schedule (no risks)
Blue bars represent
project schedule with
risks
Blue bars represent
project schedule with
risks
Because of risks, project duration
significantly increased
Because of risks, project duration
significantly increased

32. Results of Risk Analysis
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Project Summary:
project duration,
cost, and finish time
with and without
risks
Project Summary:
project duration,
cost, and finish time
with and without
risks
Results of analysis
for project cost,
finish time, and
duration
Results of analysis
for project cost,
finish time, and
duration
Double click on any chart to view detailed informationDouble click on any chart to view detailed information

33. Detailed Results of Analysis
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Move the slider to determine the
chance that project will be within
budget
Move the slider to determine the
chance that project will be within
budget
Get detailed
statistical data
Get detailed
statistical data
Data can be exported
as an image or text
Data can be exported
as an image or text
Detailed results can be shown for each tasks
or whole project for cost, duration, start
time, finish time, and income.
Detailed results can be shown for each tasks
or whole project for cost, duration, start
time, finish time, and income.

34. Sensitivity
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Tornado chart shows risks or
other parameters have the most
affect on the project schedule
Tornado chart shows risks or
other parameters have the most
affect on the project schedule
Top critical risks need to
be mitigated first
Top critical risks need to
be mitigated first

35. Crucial Tasks
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Crucial tasks have the
most affect on the
project schedule
Crucial tasks have the
most affect on the
project schedule
Crucial tasks for project cost and
duration can be different
Crucial tasks for project cost and
duration can be different

36. Success Rate
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A task can be canceled if it reaches a task or a project deadline or if it is affected
by risk with a “Cancel task” outcome.
Success rate is calculated
based on number of
times the task is not
canceled
Success rate is calculated
based on number of
times the task is not
canceled

37. Risk Chart
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Risk chart show risks, associated with task versus duration or cost
This task has low
duration but high
risk
This task has low
duration but high
risk
These tasks have
balanced risk versus
duration ratio.
These tasks have
balanced risk versus
duration ratio.

38. Risk Matrix
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Risk matrix shows probability/impact on 5x5 matrix
Double-click on a
risk to view risk
assignments
Double-click on a
risk to view risk
assignments
Risk Probability,
Impact and Score for
the current schedule
Risk Probability,
Impact and Score for
the current schedule

39. Risk Planning
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Modeling risk mitigation efforts
•Risk handling strategies
•Transfer
•Mitigate
•Eliminate
•Ignore
•Risk mitigation efforts represent their own costs etc.
which must be accounted for
•Create multiple baselines that model pre and post
mitigation risk handling efforts
•View results of risk handling efforts
•Select project alternative based on criteria (cost,
duration, start and finish time, success rate)

40. Future Reading
Lev Virine and Michael Trumper
Project Decisions:
The Art and Science
Management Concepts, Vienna, VA, 2007
Lev Virine and Michael Trumper
Project Think:
Why Good Managers Make Poor Project Choices
Gower, 2013