Project Planning and Control

Project Planning and Control

Lecture: 7

MS-PM Spring 2015

Riphah International University

Islamabad. Pakistan

Risk

It is an uncertain event or condition that, if it occurs, has a positive or negative effect on one or more project objectives such as scope, schedule, cost, and quality (PMBok Guide 5th Ed)

Project risk has its origins in the uncertainty present in all projects.

A negative project risk that has occurred is considered an issue.

Known and Unknowns

Known risks are those that have been identified and analyzed, making it possible to plan responses for those risks.

Known risks that cannot be managed proactively, should be assigned a contingency reserve.

Unknown risks cannot be managed proactively and may be assigned a management reserve.

Individual and Overall Project Risks

Individual project risks are different from overall project risk

Overall project risk represents the effect of uncertainty on the project as a whole.

It is more than the sum of the individual risks within a project, since it includes all sources of project uncertainty.

Positive and negative risks are commonly referred to as opportunities and threats.

Project Risk Management Overview

Plan Risk Management

Plan risk identification, analysis, response and Control Measures

Identify Risks

Risk Analysis

Qualitative (Mandatory in every project)

Quantitative (Compulsory in large projects)

Plan Risk Response

Control Risks

Qualitative Risk Analysis

Qualitative Risk Analysis is the process of prioritizing risks for further analysis or action by assessing and combining their probability of occurrence and impact (PMBok Guide 5th Ed).

It enables project managers to reduce the level of uncertainty and to focus on high-priority risks.

Qualitative Risk Analysis Tools and Techniques

Quantitative Risk Analysis

Quantitative Risk Analysis is the process of numerically analyzing the effect of identified risks on overall project objectives.

Quantitative Risk Analysis is performed on risks that have been prioritized by the Qualitative Risk Analysis process

It produces quantitative risk information to support decision making in order to reduce project uncertainty.

Quantitative Risk Analysis Tools and Techniques

Quantitative Risk Analysis Modeling Techniques

Sensitivity analysis

It examines the extent to which the uncertainty of each project element affects the objective being studied when all other uncertain elements are held at their baseline values.

It helps to determine which risks have the most potential impact on the project.

It helps to understand how the variations in projects objectives correlate with variations in different uncertainties.

Sensitivity Analysis

Expected Monetary Value Analysis

Calculates the average outcome when the future includes scenarios that may or may not happen (i.e., analysis under uncertainty).

Opportunities are generally expressed as positive values, while those of threats are expressed as negative values

EMV for a project is calculated by multiplying the value of each possible outcome by its probability of occurrence and adding the products together

EMV Analysis

Modeling and Simulation

A project simulation uses a model that translates the specified detailed uncertainties of the project into their potential impact on project objectives.

In a simulation, the project model is computed many times (iterated), with the input values (e.g., cost estimates or activity durations) chosen at random for each iteration from the probability distributions of these variables.

Modeling and Simulation

A histogram (e.g., total cost or completion date) is calculated from the iterations.

For a cost risk analysis, a simulation uses cost estimates.

For a schedule risk analysis, the schedule network diagram and duration estimates are used.

Modeling and Simulation

Monte Carlo Simulation

A process which generates hundreds or thousands of probable performance outcomes based on probability distributions for cost and schedule on individual tasks (PMBoK 5th Ed).

The outcomes are then used to generate a probability distribution for the project as a whole

Simulations are typically performed using the Monte Carlo technique.

Monte Carlo Simulations

Probabilistic Statistical

Analysis

Most Likely Estimates

Pessimistic Estimates

Optimistic Estimates

Monte Carlo Estimates

Monte Carlo Estimates Interpretations

There are three types of probability curves

Normal or Bell Curve

Values in the middle near the mean are most likely to occur

Lognormal

Values are positively skewed towards Optimistic estimates .

Uniform

All values have an equal chance of occurring, and the user simply defines the minimum and maximum.

Monte Carlo Normal/Bell Curve

Probability

Most Likely

Pessimistic

Optimistic

High probability on these values

Bell Curve

Lognormal Curve

Probability

Most Likely

Pessimistic

Optimistic

High probability on these values

Critical Chain Management

The resource-constrained Critical Path is known as the Critical Chain.

The critical chain method adds duration buffers that are non-work schedule activities to manage uncertainty.

Critical Chain Method

Critical Chain Buffers

There are three types of Buffers

CCPM Vs CPM

CCPM Schedules

Identify Critical Chain

Critical Chain is the leveled Critical Path where the activities are leveled according to resource constraint

Aggressive estimates

Provide aggressive estimates based on the level of risk involved

Calculate Buffers

Initial Estimates Aggressive estimates = Buffers

Monitor Project Buffers

Monitoring project progress and health by monitoring the consumption rate of the buffers rather than individual task performance to schedule.

CCPM Vs CPM

CPMCCPMIdentifies only critical work sequence without Resource ConstraintsIdentifies the critical work sequence, especially the work of constraint resourcesDuring execution, the critical path changes, making it difficult to manage prioritiesDuring execution, identifies the risk associated with each task and its impact on the project completionDoes not exploit constraint/scarce resourcesExploits Constraint /scarce resourcesDoes not interpret the linkage of one risk with the other activities of the projectProvides a clear linkage of one risk with all the possible related activities

Drawbacks of CCPM

Assumes that all estimates are padded or have safety margins assigned implicitly

If the estimators know that their estimates are going to be shortened, they tend to add more padding/cushion/safety margins to their estimates

Assumes the spread of a risk on the activity uniformly

Does not account for the restart of an activity or the additional activities introduced for risk mitigation in the project in case a risk is triggered.

Does not accommodate the linkage of one risk to another risk in the project.

Event Chain Methodology

Focuses on events and event chains which can modify the project schedules, objectives, scope and costs

Acknowledges the fact that a risk may have different probability of occurrence over the timeline of an activity and can have different impacts at different points in time. This also helps to mitigate the impacts of motivational and cognitive biases.

Event Chain Methodology

Principles of Event Chain

Moment of risk and state of activity

Ground Vs Excited States

Event Chains

Defining the logical relationship between risks through State Tables

Monte Carlo Simulations

Quantify the probabilities and impacts of Risks (individual + Cumulative)

Critical Event Chains

Identifying the CRITICAL CHAINS of Events that can impact a Project significantly

Performance Tracking with Event Chains

Probability and time of the events can be recalculated based on actual data

Event Chain Diagrams

Simplifying analysis through visual diagramming methods like GANTT Charts etc.

Principles of Event Chain

Advantages of ECM

Acknowledges Repetition of an activity on a project and a relationship between risks and events

Acknowledges different impacts of same risk happening at different point in time on an activity

Incorporates the Mitigation Plans in the original/baseline schedule

Defines estimates based on Resource Scarcity, taking in account events like sick leaves, temporary leaves and vacations etc.