2010palisadeconf_michaelbrink_scheduleriskanalysis

Palisade Risk Conference

Introduction to Schedule Risk Analysis

using a Risk Driver Approach

Sydney, 20 & 21 October 2009

Presenter: Michael Brink

TBH CAPITAL ADVISERS CAPITAL ADVICE FOR THE LIFE OF THE PROJECT

CAPITAL

ADVISERS

Objectives and Purpose

• Purpose of presentation is to provide an introduction to Schedule Risk Analysis as a tool to understand project schedule and completion risk and to introduce the risk driver approach to Schedule Risk Analysis

• The Risk Driver approach to Schedule Risk Analysis in the presentation draws largely on approach outlined in the text “Practical Schedule Risk Analysis” by David Hulett.

Scope and Limitations of Presentation

• Time allocated is about 45 minutes so presentation is necessarily high level

• Assumption is attendees have some familiarity with Schedule Risk Analysis via tools such as @RISK for MS Project (ideally sat through Rishi’s MS Project @RISK presentation yesterday?)

• Hopefully provides enough of the flavour of the risk driver approach

• Anyone seeking a more detailed discussion I am in the process of developing a 2 day hands on workshop on this topic

Critical Path Method (CPM) raises a number of issues”

• Experience indicates that CPM scheduling does not always reliably identify the path that ultimately determines project completion date

• Possible drivers of this are: – Project Scheduling by is nature is a difficult discipline – Rules of Scheduling complex – Often owners/manager set unrealistic deadlines – Historically schedules have used point estimates for duration i.e.

deterministic approach

• Schedule Risk Analysis offers an approach that can address some of the inherent CPM weaknesses.

• Risk Driver Approach is a further refinement to Schedule Risk Analysis that focuses on specific risks driving schedule risk

Questions that Schedule Risk Analysis seeks to answer

• What is the likelihood of achieving target completion dates

• What level of contingency time should be allowed to provide a level of completion certainty acceptable to the project owners

• Where are the greatest risks in the project schedule

Dealing with Schedule Uncertainty “There are no facts about the future”

• Uncertainty in project schedule duration arises primarily due to: – uncertainty due to estimation error; and

– uncertainty due to risks and impact on schedule durations

• The Risk Driver Approach to Schedule Risk Analysis is focused on explicitly analysing schedule uncertainty arising from these two sources

Dealing with Schedule Uncertainty Uncertainty arising from Estimation Error

• Activity duration usually estimated based on:

– Knowledge of work done

– Resources available

– Productivity of resources available

– Reliance on other parties

• Expressed in terms of:

– Percentage below and above

– E.g. -10% +15%

Dealing with Schedule Uncertainty Uncertainty arising from Project Risks

• Project Risks leading to schedule uncertainty include:

– Technology risk

– Resource availability risk

– Resource productivity risk

– Supplier performance or delivery risk

– Regulatory risk

– Schedule Completion pressure

Applying Monte Carlo analysis to Schedule analysis

• Activity duration best represented by probability distribution

• Selecting best/most suitable probability distributions beyond scope of this presentation (triangular distribution is used in all following examples) but usual options are: – Triangular

– Beta distribution

– Normal

– Uniform

Visualising random sampling from a triangular distribution (Lotto model)

Most Likely Best Case Worst Case

Monte Carlo Random Sampling visualised

For each input distribution each Monte Carlo iteration

involves a single random draw from the bucket of balls

Applying Monte Carlo analysis

Typical Schedule Risk Analysis outputs

0

0 X <=14/06/2012

95%

0

0.2

0.4

0.6

0.8

1

01/04/12 26/04/12 21/05/12 15/06/12 10/07/12

Distribution for Complete/Finish

Schedule Contingency P80

P80 Completion Date

Deterministic Completion Date

Before discussing Risk Driver Approach will briefly consider:

• Need for high quality Schedule

– Limited time to discuss

– Specialised skill of TBH

• Collecting Risk Data

– Cultural biases to avoid

– Risk Interviews vs Risk Workshops

– Selecting appropriate distributions

– Focus on values in the tails min and max

Overview of the Risk Driver Approach

• Starts with risks that are prioritised in Risk Register, uses these risks to drive activity duration uncertainty

• Risk Interviews focuses on risks rather than impacted activity durations

• Probability distributions for each activity are derived based on probability and impact of all risks that are assigned to that activity

• Risks broadly considered in two categories – Risks that apply 100% of the time, and – Risks that apply less than 100% of the time

• Total Contingency reserve is explained in terms of risks that cause it and mitigation strategies can focus on risks rather than activities

Mechanics of the Risk Driver Approach

• Risk Register used to determine probability of occurrence and impact on schedule if risk occurs for prioritised risks

• Impact may be positive (=opportunity) or negative ( = threat) • Risks assigned specifically to each activity impacted

– One risk can impact several activities, and – One activity can be impacted by several risks

• Activities impacted by a single identical risk will be 100% correlated • Once completed overall project risk can be measured in terms of schedule

contingency • Impact of mitigation is measure against schedule contingency • Risk Driver approach is based on assumption that the risk drivers are base

level risk independent of each other (i.e. not correlated) but activities may be correlated

• Risk Interviews conducted at the same base risk driver summary level rather than at an individual activity level

Risk No 1 P=40% Factors

.95, 1.1, 1.15

Duration Activity A

Duration Activity B

Correlation between durations of Activity A

and B is 100%

100% correlation using Risk Driver approach


.95, 1.1, 1.15

Duration Activity A

Duration Activity B

Presence of non common risks reduces Correlation

between durations of Activity A and B to 48%


.8, .95, 1.05


1.0, 1.1, 1.2

Less than 100% correlation using Risk Driver approach

Mechanics of the Risk Driver Approach

• Step 1 is to specify the Risks that are 100% likely to occur

– Typically this would relate to a background risk around estimating accuracy based on maturity of the project, for example could be a simple -5% best case and +5% worst case

– Or could be other risks with 100% certainty

• Step 2 specify the Risks that are less than 100% likely to occur

In the schedule example above, the less than 100% Risk could be

• Regulatory approvals

• Long Lead Time Procurement Supplier Delays

• Design Productivity

• EME HR shortages

• Construction Logistics

• Government Infrastructure Delivery

Mechanics of the Risk Driver Approach Step 3: Assign risks to activities

Regulatory LLT SuppliersDesign

Productivity

EME HR

shortages

Construction

Logisitics

Government

Infrastructure

Delivery

Approvals

Design phase

LLT Procurement

Construction

Commissioning

Activities

Risks Assigned


Productivity

EME HR

shortages

Construction

Logisitics

Government

Infrastructure

Delivery

Approvals

Design phase

LLT Procurement

Construction

Commissioning

Activities

Risks Assigned


Productivity

EME HR

shortages

Construction

Logisitics

Government

Infrastructure

Delivery

Approvals

Design phase

LLT Procurement

Construction

Commissioning

Activities

Risks Assigned

0.95 1.05 1.0

P=100% Background risk, estimating accuracy


Productivity

EME HR

shortages

Construction

Logisitics

Government

Infrastructure

Delivery

Approvals

Design phase

LLT Procurement

Construction

Commissioning

Activities

Risks Assigned

0.9 1.2 1.0

0.95 1.05 1.0

P=30%

P=100%

1.0 1.3 1.1

0.8 1.5 1.0

1.2 1.75 1.5

1.0 1.3 1.1

1.2 1.75 1.5

P=15%

P=35%

P=45% P=25%

P=40%

Background risk, estimating accuracy

0 X <=31/05/2012

95%

0

0.2

0.4

0.6

0.8

1

22/03/12 09/04/12 27/04/12 15/05/12 02/06/12 21/06/12

Distribution for Complete/Finish

Prioritising Schedule Risks using Risk Driver Approach Deterministic Date: 19-Jan-12

P80 Impact on P80 Date

Background plus All Risks 21-Jun-12 Days % of Total

Risks removed in Prioirty order

LLT Procurement 14-May-12 38 25%

Approvals 10-Apr-12 34 22%

Construction 13-Mar-12 28 18%

Design Phase 22-Feb-12 20 13%

Construction 6-Feb-12 16 10%

Commissioning 25-Jan-12 12 8%

Background Risk 19-Jan-12 6 4%

Total 154 100%

Prioritising Schedule Risks using Risk Driver Approach

Using Risk Driver Approach to measure mitigation impacts

Wrap up

• Very quick introduction to Risk Driver Approach to Schedule Risk Analysis

• Hopefully demonstrates the benefits of applying a Risk Driver Approach to Schedule Risk Analysis

• If it is to be adopted needs to flow through to how Schedule Risk Workshops are conducted to focus on key risk drivers and follow up risk interviews

• TBH Capital Advisers is developing a 2 day, hands on workshop on the approach for anyone interested in more detail

2010palisadeconf_michaelbrink_scheduleriskanalysis

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