Quantitative Project Risk Analysis

Agenda Introduction Part One Part Two Q and A Project Decision Framework Quantitative Analysis within Project Risk Management Part Two Practical Exercises Q and A

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

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

Vision: Quantitative project analysis for the rest of us Develop application No specialist training required to get started Easier to use and understand Relatively inexpensive Provide project decision analysis training and consulting to support application © Intaver Institute 2009

Part One: Project Decisions Framework and Quantitative Analysis Project Decision Analysis Quantitative Project Risk Analysis and Management Bring out parking lot questions

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

Risk Analysis Pyramid Risk Management Planning Quantitative Analysis Qualitative Analysis Risk Management Planning 8 © Intaver Institute 2009

Quantitative Estimates Uncertainties 3pt estimates Distributions Risk events Chance Outcome Result Moment of risk © Intaver Institute 2009

Types of uncertainties Duration Cost Start and Finish Times Lags Rates and Resource Allocation Entered as 3 pt estimate © Intaver Institute 2009

Types of Risk Task Resource Global (project or local) © 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 So what should we use.

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

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 Risks are separated from the schedule and cost. When we use distributions, we set “boundaries” on them. Risk events less effected as we do not know the statistical outcome until Monte Carlo is run. Less conscious or unconscious “gaming” of estimates.

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

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

Project Risk Analysis Create project schedule Define project uncertainties Define project risks Perform Monte Carlo Simulations Analyze results

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

Project Summary Main Project Parameters with and without risks Probabilistic results

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

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 Green bars represent tasks uncertainties that have almost no affect on the project schedule Crucial tasks have the most affect on the project schedule Crucial tasks for project cost and duration can be different

Critical risks need to be mitigated first Tornado chart shows the risks that have the most impact on project costs

3 most important project parameters (cost, duration, and finish time) Project Dashboard 3x3 Project Dashboard 3x3 is a condensed view for most important results of analysis 3 most important project parameters (cost, duration, and finish time) 3 most crucial tasks 3 most critical risks

Risk Chart The risk chart shows risk uncertainty for tasks versus duration or cost This task has high cost and risk These tasks have balanced risk versus cost ratio.

Success Rate 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. The deadline is causing calculation of the task in 86% of cases 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 For each task at any moment you may enter how much work has been completed This task is 100% completed (green bar) 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 Low, base, and high forecast Actual project duration Original (baseline) project duration

Intaver Institute 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

Additional Resources Project Think: Intaver Institute 2011 Additional Resources Project Think: Why Good Managers Make Poor Project Choices Project Decisions: The Art and Science Introduction to Project Risk Management and Decision Analysis Project Risk Analysis Made Ridiculously Simple