1 Risk Analysis Avoiding Future Impacts. Futron Corporation 1120 NASA Road 1, Suite 310 Houston,...

We make technology work • 1

Risk AnalysisAvoiding Future Impacts

Futron Corporation • 1120 NASA Road 1, Suite 310 • Houston, Texas 77058Phone 281-333-0190 • Fax 281-333-0192 • www.futron.com

We make technology work

Risk Analysis Techniques Risk Analysis Techniques Schedule, Cost, and Other AspectsSchedule, Cost, and Other Aspects

INCOSE

Heartland Chapter

October 24, 2001


What Is Risk and Risk What Is Risk and Risk Management? Management?

• Risk:» Definition: Risk is an event that threatens the accomplishment of one or

more future goals or objectives

» A Risk is described by the likelihood that an event will occur and the severity of the consequence of that event should it occur.

» Risk is about a possible future event and is often confused with issues and problems. If the likelihood is certain or near certain, then it is not a risk.

• Risk Management:» Definition: Risk management is the formal process of identifying

risks, assessing their magnitude, making decisions about how to handle, and then tracking the progress of the handling approach.


The Basic Risk Management ProcessThe Basic Risk Management Process

Planning Identification Analysis HandlingCommuni-cation & Tracking

• Build the process• Allocate Responsibilities• Determine “What is to be Risk-Managed”

• Comparative Analysis• Assign Attributes• Assign Ownership

• Evaluate the Impact• “A” Risk• “All” Risks

• Prepare Decision-packages

• A Decision-Making Process

• Iterative with Analysis to select mitigation

• Keep everyone aware of decisions made

• Track progress • Evaluate effectiveness


How to State a Risk – Formula for How to State a Risk – Formula for SuccessSuccess

• A risk statement is written as follows:

» “If A occurs because of B, then C will be the result.”

• “A” is symptomatic, “B” is causal, “C” is the outcome

• Common errors:

» Thinking that problems and issues are risks

» Using the Risk Management Database as a tool to bring attention to

problems and issues


Exercise 1aExercise 1a

• Identify whether the following contains a risk or a problem:

• You have an 16 year old son who has a job at a restaurant in Baybrook Mall. He wants to drive your car to work.

• … a shady part of town. He works the night shift.

• Plus: He’s moved into an apartment with another young man who has already had his driver’s license revoked



• Identify whether the following is a risk or a problem:

• You have an 16 year old son who has a job at a restaurant in Baybrook Mall. He wants to drive your car to work.

• … a shady part of town. He works the night shift.

• Plus: He’s moved into an apartment with another young man who has already had his driver’s license revoked


Risk Handling Exercise:Risk Handling Exercise:Possible Handling ActionsPossible Handling Actions

• Accept» Take no action

» Make contingency plans

• Avoid» Change requirement

» Don’t do …

• Transfer» Give to someone else better equipped to deal with risk

» Insurance underwriters

• Mitigate» Reduce Likelihood

» Reduce Consequence



• We’re back to your son…what would you do with the risk of him having an accident for which he is at fault? He is currently uninsured.

• How would you “Avoid” this risk?

• … “Transfer” : He has a good driving record, lives at home

• What if your son is in a hi-risk pool and collision insurance is $4500 per year?

• Can you think of some “Mitigation” actions?

We make technology work• 10

OutlineOutline

• What Is Risk Analysis?

• What Products Do We Need To Produce?

• How Are They Produced?


What is it?: DefinitionWhat is it?: Definition

• Risk Assessment (about “a” risk)» The process of estimating the probability and impact for each risk

» Assigning other relevant attributes to a risk

• Risk Analysis (about “all” risks)» Combining and studying the effects of multiple risk assessments

» A "snapshot" in time of the project’s risk environment

» Often done with a Monte Carlo simulation

» Uses models to understand characteristics of the project

» Results derived include • Probability of meeting the project objective such as a completion date

• Contingency needed to achieve an acceptable level of likely project results

• Finding the risks which put the objective in greatest jeopardy

Source: PMI RiskSIG Lexicon: www.risksig.com/resource/lexicon.htm


Assessment –Assessment –Assigning A Value To “A” Risk Assigning A Value To “A” Risk

• From previous Module, we have learned how to construct the Risk Matrix using qualitative techniques

Level-1 Very HighLevel-2 High

Level-n Very Unlikely

Likelihood

Cost Schedule Technical Mission

Level-1 Very High GT 50 daysVery

DifficultLoss of Vehicle

Level-2 High 25-50 days Moderate

Loss of primary science objective

Level-n Low 5 daysEasy as

pie

Loss of minor

function

ASN 5X5 Risk MatrixASN 5X5 Risk Matrix

(5)

(4)

(3)

(2)

(1)

(10)

(8)

(6)

(4)

(2)

(15)

(12)

(9)

(6)

(3)

(20)

(16)

(12)

(8)

(4)

(25)

(20)

(15)

(10)

(5)

High

Med.

Low

Consequence

Lik

elih

oo

d

1 2 3 4 5

e

d

c

b

a

M

L

VL

H

M

L

VH

H

M

VH= Very HighH = HighM = MediumL = LowVL = Very Low

3 X 3 Space Station & Genesis

4 X 4’s are common,e.g. JPL/MER

Does not have to be symmetrical

5 X 5 not a requirement


Risk n

After “Assessment” what do you have?After “Assessment” what do you have?

• Ordered sets of individual risks• But, no clear understanding of the integrated risk

environment

Risk 1Item

Description

Cost Schedule Technical Mission

Level-1 Very High GT 50 daysVery

DifficultLoss of Vehicle

Level-2 High 25-50 days Moderate

Loss of primary science objective

Level-n Low 5 daysEasy as

pie

Loss of minor

function

Level-1 Very HighLevel-2 High

Level-n Very Unlikely

Likelihood

RED

Yellow

Green

Affinity Grouping

Consolidation

Classification

Evaluation

Development Risks

1 6 8 10 10 10 8 93 2

14

1616 14 14 13 15 15

9 9

12

52 2 4 5

3 3

1 1 1 1 58

20 212

0

5

10

15

20

25

30

35

40

PD

R

09

/24

/19

98

10

/20

/19

98

11/2

5/1

99

8

01

/14

/19

99

03

/09

/19

99

05

/21

/19

99

06

/03

/19

99

08

/17

/19

99

01

/31

/20

00

Time

Nu

mb

er o

f R

isks

# Low # Medium

# High # Retired

Top – 10 (or so)---------Risk n

Risk 1Item

Description


Now what should I do with this stuff?Now what should I do with this stuff?

• Decision-making with “piles” of risks? How?

• These decisions need to be made based on the total integrated risk impact to the project

– That integrated impact is often counter-intuitive

The easy way out is to reduce all RED risks and most YELLOW risks, but can you afford it?

If, so, then stop here!

The easy way out is to reduce all RED risks and most YELLOW risks, but can you afford it?

If, so, then stop here!


OutlineOutline





Typical Decision Support Data ProductsTypical Decision Support Data Products

• Risk-based reserve allocation• Double Pareto Boxes• Analytical Hierarchy Process• Bubble charts• Stochastic critical path analyses• Risk-based schedule margin allocation• Cumulative distribution functions and their utility in decision-

making• Probability density functions and their utility in decision-making• Cost utility functions and their utility in decision-making• Stochastic trending charts• Importance Values

• Hyperlink indicates that a sample follows


Double Pareto BoxDouble Pareto Box

• Focus management attention on drivers» Reduced list by order of magnitude: ~100 => ~10 (ISS Experience)

• Make effective decisions:» Which risks to accept» Which risks to manage

The Double - Pareto box is a very useful decision support tool for making mitigation decisions

The Double - Pareto box is a very useful decision support tool for making mitigation decisions

At-risk Days Duration

Risk #1 Risk #2 Risk #3 Risk #n

WBS Task #1 9 0 44 12

WBS Task #2 78 65 0 8

WBS Task #3 0 56 87 7

WBS Task #4 25 0 24 6

WBS Task #m 88 0 56 0

At-risk Days Duration

Risk #12 Risk #8 Risk #51 Risk #n

WBS Task #21 113 81 63 12

WBS Task #8 96 72 55 8

WBS Task #15 81 66 41 7

WBS Task #93 43 23 13 6

WBS Task #m 2 2 1 0

Whining


Stochastic Critical PathStochastic Critical Path

• Critical Paths» Deterministic» Stochastic

• Risk-based• Sensitivity -- Problem-based

• Provide Decision Support and Watch Items for Project Manager

» Where can I relax my vigil» Where/when should I intensely focus

ATLO Launch

Other Bus Com

ponents

Star T

rack

erFS

W 1

& 2

FSW

3 &

4

SRC

Canister

FSW

5

PPIC, C&DH, PCAs


AA

Utility of Cumulative Distribution Utility of Cumulative Distribution Functions, CDFsFunctions, CDFs

• To provide the decision maker with information to make risk-handling investments

• Gives you a much richer decision-making environment

• Decisions will be more mature

100%

80%

60%

40%

20%

0%Cost

What cost would you propose?

A

100%

80%

60%

40%

20%

0%

B

Cost

Which Option would you choose?

Margin


Launch Readiness Probability

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Nov-

98

Dec-

98

Jan-9

9

Feb-9

9

Mar-

99

Apr-

99

May-

99

Jun-9

9

Jul-

99

Aug-9

9

Sep-9

9

Oct

-99

Nov-

99

Dec-

99

Jan-0

0

Feb-0

0

Mar-

00

Apr-

00

May-

00

Date

Pro

bab

ilit

y

8% Chance You will be ready!!!

Probability Density FunctionsProbability Density Functions

You were told to be ready to launch to the ISS on: 2/99

However, in your heart, you know that the ISS will not be ready for you!!

What do you do?

How do you plan?

Probability GBF is Ready When i Station is Ready

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

No

v-9

8

Jan

-99

Ma

r-9

9

Ma

y-9

9

Jul-

99

Se

p-9

9

No

v-9

9

Jan

-00

Ma

r-0

0

Ma

y-0

0

Date

Pro

babilit

y D

ensi

ty

GBF

ISSA

76% chance current plan will deliver facility when space station is ready


Section RecapSection Recap

• There exist tools and techniques that produce good quality information that relate risk and probable future outcomes that threaten cost, schedule and mission success

• These tools and techniques greatly enhances the decision-maker’s quality of decisions

So, How is this done??Reminder: Tools Handout


OutlineOutline





How Is It Done?How Is It Done?

• Step 1. Decide “What is to be risk-managed”

• Step 2. Build a model

• Step 3. Select risks for simulation

• Step 4. Evaluate risks and input

• Step 5. Analyze, perform the trade studies

• Step 6. Create the decision-support reports for your project manager

What?

1Model

2Select Risks

3Evaluate

4Analyze

5Create

Reports

6


There are only three classes of models needed

• Integrated Cost, Schedule, Technical» (Class participative Simulation)

What? Model Select Risks Evaluate AnalyzeCreate

Reports

1 2 3 4 5 6

WBS

Task 100

Task 101

Task 102

Task 103

Task 104

Task 105

Task 106

Event Trees Using

Failure Rates From

Analogies• Mission Models » Performance» Mission success» (Overview and set-up only)

1 2 3

5 6

4Defects

Defects

Re-work

Re-work

• Process Models» Operations and support» (Example not presented)


CST Model – Project Network*

CST ModelCST Model

WBS

Task 100

Task 101

Task 102

Task 103

Task 104

Task 105

Task 106

Days, Facilities, Parts, People*

*This is KEY! This is the part of the technique that integrates the cost and schedule risk impacts


Reports

1 2 3 4 5 6

Probability Density

Function

Research ProjectFind AnalogiesExecute QuestionnaireAnalyze Databases---------------What can go wrong?How likely is it?What is the cause?What would be the consequence?

Monte Carlo Sim. Tool

1.0

.8

.6

.4

.2

0Days, Facilities, Parts, People

Cumulative Distribution Function


Data Sources-1Data Sources-1• Data Required

» CST: Days at-risk, dollars at-risk» Mission: Probability of failure, failure rate

• Data Type» Probability distributions» 3-point distributions are fine: Pessimistic, Most-likely, and optimistic

• Expert opinion

• Analogies and databases of prior experiences


Reports

1 2 3 4 5 6

Probability Density

Function

Probability Density

FunctionRisk Correlation

Factors

Project Risk Information

Example: Q-Model


Data Sources-2Data Sources-2

• Projects are at-risk of significant overrun if they proceed before they are ready

INVESTMENT IN DEFINITION

PHASES VS GROWTH

-

0

50

100

150

200

0 5 10 15 20

Definition Ratio, % Total Project

Cost Invested In Definition Phases

Proj

ect C

ost G

row

th, %

(Source: NASA Comptroller’s Office)


Reports

1 2 3 4 5 6


Data Sources-3Data Sources-3

• System Management Process Maturity

• Deviations from norm introduce risk


Reports

1 2 3 4 5 6

OptimizingOptimizing

InitialInitialPerformedPerformed

ManagedManagedDefinedDefined

MeasuredMeasured

Reference: EIA/IS 731, System Engineering Capability Maturity Model

Level5 4 3210

0 0.5 1.0 1.5 2 2.5 3 3.5 4.0 4.5 5.0

2.0

1.5

1.0

.5Overall PM Maturity

CICost Index, CI, as a Function of Capability Maturity

Source: Ibbs and Kwak, The Benefits of Project Management, PMI

Best Fit

-10%

+10%



““Hands-on” Class ExerciseHands-on” Class Exercise

“Managing Cost Schedule and Technical Risk in a Project”


Format of Class ExerciseFormat of Class Exercise

• A simplified space project will be presented

• An @Risk/MS Project simulation of the project will be presented

• The model will be run to assess the impact of the risks

• The students will be presented with the risks as identified by the simulated project, question? Is the risk list complete?

• The students must select a mitigation plan from several options presented

• The case will be rerun with the selected mitigation plan

• A random number generator will be used to obtain final outcome

• The Genesis Model will be shown using a more complex simulation tool in order to demonstrate other capabilities


Risk ListRisk List

Risk ID Title WBS Area Impacted Likeli- hood

Conse- quence

1 CF is a new development and may not meet specified power density, causing a redesign to reduce mass in other areas.

Power & Structure Hi Hi

2 CF Design cooling requirements may be greater than expected causing redesign of the thermal system

Structure Med Hi

3 RFI from CF system may exceed TeleCom requirements causing a switch to an alternate system

TeleCom Lo Med


Risk Manager’s ReportRisk Manager’s Report

Distribution for Project/Cost

0

0.2

0.4

0.6

0.8

1

1.2

175

179

183

187

191

195

199

203

207

211

Values in Millions

Pro

b o

f V

alu

e <

= X

-axi

s V

alu

e

Distribution for Complete/Finish

0

0.2

0.4

0.6

0.8

1

1.2

2/2/

06

3/9/

06

4/13

/06

5/18

/06

6/22

/06

7/27

/06

8/31

/06

10/5

/06

11/9

/06

12/1

4/06

Date

Pro

b o

f V

alu

e <

= X

-axi

s V

alu

e

Launch Window

Cost Cap


Handling Options – Pick Your Poison!Handling Options – Pick Your Poison!

• Accept – Build contingency plan

• Avoid – Switch to PV

• Transfer – Sorry, not allowed by your organization!

• Mitigate Consequence

» Reduce mass

» Add thermal margin

» Buy better Telecom eqpt

• Mitigate Likelihood – Insert advanced tech development project up

front

• Other??? Skip to Closing


AcceptAccept

• It’s a trap!!!

• All you have done is add cost and more risk

• The likelihood and consequences of the risks are unchanged

• You have done nothing to help your case

• Unfortunately this is a very common approach and very ineffective


Avoid ResultsAvoid Results


0

0.2

0.4

0.6

0.8

1

1.2

165

170

175

180

185

190

195

200

205

210

Values in Millions

Pro

b o

f V

alu

e <

= X

-axi

s V

alu

e


0

0.2

0.4

0.6

0.8

1

1.2

5/28

/05

7/17

/05

9/5/

05

10/2

5/05

12/1

4/05

2/2/

06

3/24

/06

5/13

/06

7/2/

06

8/21

/06

Date

Pro

b o

f V

alu

e <

= X

-axi

s V

alu

e

Launch WindowCost Cap


The Winner: Avoid & Outsource SWThe Winner: Avoid & Outsource SW


0

0.2

0.4

0.6

0.8

1

1.2

160

165

169

174

178

183

187

192

196

201

Values in Millions

Pro

b o

f V

alu

e <

= X

-axi

s V

alu

e


0

0.2

0.4

0.6

0.8

1

1.2

5/28

/05

6/27

/05

7/27

/05

8/26

/05

9/25

/05

10/2

5/05

11/2

4/05

12/2

4/05

1/23

/06

2/22

/06

Date

Pro

b o

f V

alu

e <

= X

-axi

s V

alu

e

Launch Window

Cost Cap


Mitigate ConsequenceMitigate Consequence


0

0.2

0.4

0.6

0.8

1

1.2

155

163

170

178

185

193

200

Values in Millions

Pro

b o

f V

alu

e <

= X

-axi

s V

alu

e


0

0.2

0.4

0.6

0.8

1

1.2

5/28

/05

8/11

/05

10/2

5/05

1/8/

06

3/24

/06

6/7/

06

8/21

/06

Date

Pro

b o

f V

alu

e <

= X

-axi

s V

alu

e

Launch Window

Cost Cap


Mitigate LikelihoodMitigate Likelihood


0

0.2

0.4

0.6

0.8

1

1.2

180

184

188

191

195

199

203

Values in Millions

Pro

b o

f V

alu

e <

= X

-axi

s V

alu

e


0

0.2

0.4

0.6

0.8

1

1.2

6/12

/06

7/15

/06

8/17

/06

9/19

/06

10/2

2/06

11/2

4/06

12/2

7/06

Date

Pro

b o

f V

alu

e <

= X

-axi

s V

alu

e

Launch Window

Cost Cap


What About Good Luck??What About Good Luck??

• 2- .028

• 3 - .083

• 4 - .166

• 5 - .277

• 6 - .416

• 7 - .583

• 8 - .722

• 9 - .833

• 10 - .916

• 11 - .971

• 12 – 1.00


A few carry-away thoughts …A few carry-away thoughts …

"History is a vast early warning system." Norman Cousins

“Those who cannot remember the past are condemned to repeat it.” George Santayana

"Insanity: doing the same thing over and over again and expecting different results.” Albert Einstein



ClosingClosing


QUALITY ASSURANCE AND THE SINKING OF THE LARGEST OFFSHOREOIL PLATFORM

March 2001


For those of you who may be involved in project cost control (at whatever level),


please read this quote from a Petrobras executive,


extolling the benefits of cutting quality assurance and inspection costs,


on the project that sunk into the Atlantic Ocean off the coast of Brazil in March 2001.


"Petrobras has established new global benchmarks for the generation of exceptional shareholder wealth


through an aggressive and innovative programme of cost cutting on its P36 production facility.


Conventional constraints have been successfully challenged


and replaced with new paradigms appropriate to the globalised corporate market place.


Through an integrated network of facilitated workshops,


the project successfully rejected the established constricting and negative influences of prescriptive engineering,


onerous quality requirements, and outdated concepts of inspection and client control.

We make technology work• 54 Elimination of these unnecessary straitjackets has empowered the project's suppliers and contractors to propose highly economical solutions,


with the win-win bonus of enhanced profitability margins for themselves.


The P36 platform shows the shape of things to come


in unregulated global market economy of the 21st Century.“


And now you have seen the final result of this proud achievement by Petrobras.


QUIZ:

1. How many lives were lost to this cost saving effort and how did this impact the environment, needlessly?

2. Did the person giving this speech or anyone in upper management connected with this decision lose their job/bonus?

3. How much did Petrobras really save?

4. Does your company have a cost saving effort? If so, you’d better know how to swim.

1 Risk Analysis Avoiding Future Impacts. Futron Corporation 1120 NASA Road 1, Suite 310 Houston,...

Documents

Transcript of 1 Risk Analysis Avoiding Future Impacts. Futron Corporation 1120 NASA Road 1, Suite 310 Houston,...