The document discusses the challenges of project management, focusing on risk management as a key factor for project success. It highlights techniques like Monte Carlo simulations for analyzing risks and uncertainties that affect project duration and costs, along with methods for eliciting probability judgments from experts. The document outlines workflows for risk event modeling and emphasizes the importance of identifying critical risks to improve project outcomes.

1. Risk Event Modeling
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2. The Project Management Problem
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Many projects are unsuccessful!
• Budget
• Schedule
• Quality
• Other measures
Projects
consistently
fail to meet:

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Key Project Management Issues
• How to estimate project duration or cost?
• What are the most critical risks and how to handle
them?
• How to measure project performance?
• How to make an informed decision about the
future course of the project?
The Project Management Problem

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Reasons
• Human psychological limits
• Inadequate training
• Poor processes
• other
The Project Management Problem

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Risk management key to project success
• Risks are events that can occur during a project
that changes to course of a project
• Risk is key source of project uncertainty and major
root cause of project failure
• Limited ability to forecast and manage project
uncertainty due to risk
The Project Management Problem

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Chains of unfortunate events
• Risks can form event chains
• A risk occurs and causes another risk to occur,
which causes yet another
• Unexpected result of a series of events derail
projects
• Statistical sampling or Monte Carlo simulations
the best solution for modeling the effect of
related and unrelated project risks
The Project Management Problem

7. Benefits
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Understand impact of risk on projects
• Understand project risk and uncertainty in Cost
and Duration
• Identify critical risks and activities
• Model risk handling efforts
• Improved contingency and buffer plans
• Monitoring with risks and uncertainties provides
strong, early signals of impending issues

8. Uses common PM artifacts
• WBS
• Resources
• Costs
• Risk Register or Risk Lists developed for
qualitative risk management
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 Probabilities of 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 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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• Risk Scores
• Overview with and without risks
• Detailed results of analysis
View results
• Sensitivity
• Crucial Tasks
• Success Rate
• Risk Chart
Identify critical
risks and tasks
• Risk ScoresRisk Matrix

29. Project Gantt
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When you have project
schedule and risk
breakdown structure ready
click here to perform Monte
Carlo simulations

30. Risk Register
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)
Blue bars represent
project schedule with
risks
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
Results of analysis
for project cost,
finish time, and
duration
Double click on any chart to view detailed information

33. Detailed Results of Analysis
Move the slider to determine the
chance that project will be within budget
Get detailed
statistical data
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.

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

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

36. Success Rate
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

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

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

39. Risk Planning
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. Additional Resources
40
Project Think:
Why Good
Managers
Make Poor
Project
Choices
Project
Decisions: The
Art and Science
Introduction to
Project Risk
Management
and Decision
Project Risk
Analysis Made
Ridiculously
Simple