Quantitative Project Risk Analysis

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Intaver Institute Inc.

303, 6707, Elbow Drive S.W.,

Calgary AB Canada T2V 0E5

www.intaver.com

Agenda

• Introduction• Part One

– Project Decision Framework– Quantitative Analysis within Project Risk Management

• Part Two – Practical Exercises

• Q and A

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Introduction

Who is Intaver Institute?– Formed 2002– Group of risk, economic, and decision analysis experts– All to some extent were involved in developing software

tools for these fields

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Problem

• Many IT projects were late or over budget• No readily available tools for the analysis of project schedules,

the provided similar analysis as the ones they were developing for other industries

• Decision analysis processes including quantitative analysis widely used in many industries, but not project management– Many project manager don’t believe in benefits of quantitative

methods– Most methods and tools remain relatively complex, require special

training, and expensive

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Vision: Quantitative project analysis for the rest of us

1. Develop application– No specialist training required to get started– Easier to use and understand– Relatively inexpensive

2. Provide project decision analysis training and consulting to support application

5© Intaver Institute 2009

Part One: Project Decisions Framework and Quantitative Analysis

• Project Decision Analysis • Quantitative Project Risk Analysis and Management

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Project Decision Analysis

• Successful projects are the result of good decisions• Structure decision analysis

– Well defined process founded in decision analysis science– Applicable to project management– Provides framework that will improve project decisions

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Decision Analysis vs. PMBOK

• Decision analysis not in conflict with PMBOK • Can be easily integrated (as needed) into current PM

Risk Analysis Pyramid

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Quantitative Analysis

Qualitative Analysis

Risk Management Planning

© Intaver Institute 20098

Quantitative Estimates

• Uncertainties – 3pt estimates– Distributions

• Risk events– Chance– Outcome– Result– Moment of risk

9© Intaver Institute 2009

Types of uncertainties

• Duration• Cost • Start and Finish Times • Lags • Rates and Resource Allocation• Entered as 3 pt estimate

10© Intaver Institute 2009

Types of Risk

• Task • Resource• Global (project or local)

11© Intaver Institute 2009

Risks or uncertainties?

• Use uncertainties in cases where you have historical data that is both strong and analogous

• Use uncertainties in cases where you have some historical data and strong expert opinion (experts have consensus)

• Use risk events when little historical data exists to back up expert opinion

• Use risk events on higher risk projects• You can use a combination of risk events and uncertainties

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Risk or uncertainties

• Risk events are less prone to the effects of human biases and heuristics

• Easier to recall effect of risk events on projects

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Event Based Analysis

• Risk event estimates less affected by heuristics and biases• Risk events estimates easier to obtain via relative frequency analysis• Event based analysis of causes of project uncertainty

– Sensitivity analysis can be done to identify critical risks– Uncertainties require additional root cause analysis to identify critical risks

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Modeling Risk Events

• Chance - % chance that the risk will occur• Outcome – relative % or fixed (e.g. % cost increase, Fixed

delay)• Result - 15% • Example Fire: 20% Chance of a Fixed Delay of 14 days• Risks can have mutually exclusive alternatives

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Monte Carlo Analysis

• Statistical sampling• Runs many simulations of a project that produces probabilistic

distributions of particular results (cost, duration, finish time, etc.)

• Gaining popularity as size and power of hardware and software improve

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Project Risk Analysis

• Create project schedule• Define project uncertainties• Define project risks• Perform Monte Carlo Simulations• Analyze results

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RiskyProject Workflow

WBS

Resources

Costs

Risk List

RiskyProject Analysis

Results of Analysis

• Project outcomes with and without risks and uncertainties• Sensitivity analysis• Cost analysis• Identifying critical risks and uncertainties• Success rates

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Project Summary

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Main Project Parameters with and

without risks

Probabilistic results

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 has significantly increased

Detailed Results of Analysis

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Move the slider to determine the chance that project will be within

budget

Get detailed statistical data

You may export this data to other software

it graphic or text formats

Detailed results can be shown for each tasks or whole project for cost, duration, start time, finish time, and income.

Cost Analysis

You may compare cash flow with (blue

line) and without (red line) risks

Cash flow is generated based on fixed and variables cost and

income associated with tasks and resources

Crucial Tasks

Crucial tasks have the most affect on the project schedule

Green bars represent tasks uncertainties in which almost not affecting project schedule

Crucial tasks for project cost and duration can be different

Critical Risks

Tornado chart shows the risks that have the most affect on

the project schedule

Critical risks need to be mitigated first

Project Dashboard 3x3

3 most important project parameters (cost, duration,

and finish time)

3 most crucial tasks

3 most critical risks

Project Dashboard 3x3 is a condensed view for most important results

of analysis

Risk ChartThe risk chart shows risk uncertainty for tasks versus duration or cost

This task has low duration but high

risk

These tasks have balanced risk versus

duration ratio.

Success Rate

The deadline is causing calculation of

the task in 86% of cases

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.

This task is affected by one of many risks with impact “Cancel task” Success rate is calculated

based on number of times the task is not

canceled

Tracking

This task is 100% completed (green bar)

For each task at any moment you may enter how much work has been completed

This task is partially completed (yellow

bar)

Risky project automatically adjust probability of risks for

partially completed tasks

Tracking Results

New project forecast is done each time actual project data is entered

Original (baseline) project duration

Actual project duration

Low, base, and high forecast

Intaver Institute

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Intaver Institute performs project risk management, risk analysis, and decision analysis training and consulting

Download a trial version of RiskyProject at: http://www.intaver.com/index-downloads.html (version 2.1)

White papers, presentations : http://www.intaver.com/index-whitepapers.html

Courses: http://www.intaver.com/riskyproject_training.html

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