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Project Planning and Control- Risk Management
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Transcript of Project Planning and Control- Risk Management
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 activitiesDrawbacks 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.