Introduction to Schedule Risk Analysis using a Risk Driver Approach

Palisade Risk Conference
Introduction to Schedule Risk Analysis

using a Risk Driver Approach
Sydney, 20

&

21 October 2009
Presenter: Michael Brink
TBH CAPITAL ADVISERS
CAPITAL ADVICE FOR THE LIFE OF THE PROJECT
CAPITAL
ADVISERS

Objectives and Purpose
Purpose of presentation is to provide an
introduction to Schedule Risk Analysis as a
tool to understand project schedule and
completion risk and to introduce the risk
driver approach to Schedule Risk Analysis
The Risk Driver approach to Schedule Risk
Analysis in the presentation draws largely on
approach outlined in the text Practical
Schedule Risk Analysis by David Hulett.
Scope and Limitations of Presentation
Time allocated is about 45 minutes so
presentation is necessarily high level
Assumption is attendees have some familiarity
with Schedule Risk Analysis via tools such as
@RISK for MS Project (ideally sat through Rishis
MS Project @RISK presentation yesterday?)
Hopefully provides enough of the flavour of the
risk driver approach
Anyone seeking a more detailed discussion I am
in the process of developing a 2 day hands on
workshop on this topic
Critical Path Method (CPM) raises a
number of issues
Experience indicates that CPM scheduling does not always reliably
identify the path that ultimately determines project completion
date
Possible drivers of this are:
Project Scheduling by is nature is a difficult discipline
Rules of Scheduling complex
Often owners/manager set unrealistic deadlines
Historically schedules have used point estimates for duration i.e.
deterministic approach
Schedule Risk Analysis offers an approach that can address some of
the inherent CPM weaknesses.
Risk Driver Approach is a further refinement to Schedule Risk
Analysis that focuses on specific risks driving schedule risk
Questions that Schedule Risk Analysis
seeks to answer
What is the likelihood of achieving target completion
dates
What level of contingency time should be allowed to
provide a level of completion certainty acceptable to
the project owners
Where are the greatest risks in the project schedule
Dealing with Schedule Uncertainty
There are no facts about the future

Uncertainty in project schedule duration arises
primarily due to:
uncertainty due to estimation error; and
uncertainty due to risks and impact on schedule
durations
The Risk Driver Approach to Schedule Risk
Analysis is focused on explicitly analysing
schedule uncertainty arising from these two
sources
Uncertainty arising from Estimation Error
Activity duration usually estimated based on:
Knowledge of work done
Resources available
Productivity of resources available
Reliance on other parties
Expressed in terms of:
Percentage below and above
E.g. -10% +15%
Uncertainty arising from Project Risks
Project Risks leading to schedule uncertainty
include:
Technology risk
Resource availability risk
Resource productivity risk
Supplier performance or delivery risk
Regulatory risk
Schedule Completion pressure
Applying Monte Carlo analysis to
Schedule analysis
Activity duration best represented by probability
distribution
Selecting best/most suitable probability
distributions beyond scope of this presentation
(triangular distribution is used in all following
examples) but usual options are:
Triangular
Beta distribution
Normal
Uniform

Visualising random sampling from a
triangular distribution (Lotto model)
Most Likely Best Case Worst Case
Monte Carlo Random Sampling visualised
For each input distribution
each Monte Carlo iteration
involves a single random draw
from the bucket of balls
Applying Monte Carlo analysis
Typical Schedule Risk Analysis outputs
0
0
X <=14/06/2012
95%
0
0.2
0.4
0.6
0.8
1
01/04/12 26/04/12 21/05/12 15/06/12 10/07/12

Distribution for Complete/Finish
Schedule Contingency P80
P80 Completion
Date
Deterministic
Completion Date
Before discussing Risk Driver Approach will
briefly consider:
Need for high quality Schedule
Limited time to discuss
Specialised skill of TBH
Collecting Risk Data
Cultural biases to avoid
Risk Interviews vs Risk Workshops
Selecting appropriate distributions
Focus on values in the tails min and max
Overview of the Risk Driver Approach
Starts with risks that are prioritised in Risk Register, uses
these risks to drive activity duration uncertainty
Risk Interviews focuses on risks rather than impacted
activity durations
Probability distributions for each activity are derived based
on probability and impact of all risks that are assigned to
that activity
Risks broadly considered in two categories
Risks that apply 100% of the time, and
Risks that apply less than 100% of the time
Total Contingency reserve is explained in terms of risks that
cause it and mitigation strategies can focus on risks rather
than activities
Mechanics of the Risk Driver Approach
Risk Register used to determine probability of occurrence and impact on
schedule if risk occurs for prioritised risks
Impact may be positive (=opportunity) or negative ( = threat)
Risks assigned specifically to each activity impacted
One risk can impact several activities, and
One activity can be impacted by several risks
Activities impacted by a single identical risk will be 100% correlated
Once completed overall project risk can be measured in terms of schedule
contingency
Impact of mitigation is measure against schedule contingency
Risk Driver approach is based on assumption that the risk drivers are base
level risk independent of each other (i.e. not correlated) but activities may
be correlated
Risk Interviews conducted at the same base risk driver summary level
rather than at an individual activity level
Risk No 1
P=40%
Factors
.95, 1.1, 1.15
Duration
Activity A
Duration
Activity B
Correlation between
durations of Activity A
and B is 100%
100% correlation using Risk Driver
approach
Risk No 2
P=40%
Factors
.95, 1.1, 1.15
Duration
Activity A
Duration
Activity B
Presence of non common
risks reduces Correlation
between durations of
Activity A and B to 48%
Risk No 1
P=25%
Factors
.8, .95, 1.05
Risk No 3
P=45%
Factors
1.0, 1.1, 1.2
Less than 100% correlation using Risk
Driver approach

Step 1 is to specify the Risks that are 100%
likely to occur
Typically this would relate to a background risk
around estimating accuracy based on maturity of
the project, for example could be a simple -5%
best case and +5% worst case
Or could be other risks with 100% certainty
Step 2 specify the Risks that are less than
100% likely to occur

In the schedule example above, the
less than 100% Risk could be
Regulatory approvals
Long Lead Time Procurement Supplier Delays
Design Productivity
EME HR shortages
Construction Logistics
Government Infrastructure Delivery

Step 3: Assign risks to activities
Regulatory LLT Suppliers
Design
Productivity
EME HR
shortages
Construction
Logisitics
Government
Infrastructure
Delivery
Approvals
Design phase
LLT Procurement
Construction
Commissioning
Activities
Risks Assigned
Design
Productivity
EME HR
shortages
Construction
Logisitics
Government
Infrastructure
Delivery
Approvals
Design phase
LLT Procurement
Construction
Commissioning
Activities
Risks Assigned
Design
Productivity
EME HR
shortages
Construction
Logisitics
Government
Infrastructure
Delivery
Approvals
Design phase
LLT Procurement
Construction
Commissioning
Activities
Risks Assigned
Design
Productivity
EME HR
shortages
Construction
Logisitics
Government
Infrastructure
Delivery
Approvals
Design phase
LLT Procurement
Construction
Commissioning
Activities
Risks Assigned
0.95 1.05 1.0
P=100%
Background risk, estimating accuracy
Design
Productivity
EME HR
shortages
Construction
Logisitics
Government
Infrastructure
Delivery
Approvals
Design phase
LLT Procurement
Construction
Commissioning
Activities
Risks Assigned
0.9 1.2 1.0
0.95 1.05 1.0
P=30%
P=100%
1.0 1.3 1.1
0.8 1.5 1.0
1.2 1.75 1.5
1.0 1.3 1.1
1.2 1.75 1.5
P=15%
P=35%
P=45% P=25%
P=40%
Background risk, estimating accuracy
0
X <=31/05/2012
95%
0
0.2
0.4
0.6
0.8
1
22/03/12 09/04/12 27/04/12 15/05/12 02/06/12 21/06/12

Prioritising Schedule Risks using Risk Driver
Approach
Deterministic Date: 19-Jan-12
P80 Impact on P80 Date
Background plus All Risks 21-Jun-12 Days % of Total
Risks removed in Prioirty
order
LLT Procurement 14-May-12 38 25%
Approvals 10-Apr-12 34 22%
Construction 13-Mar-12 28 18%
Design Phase 22-Feb-12 20 13%
Construction 6-Feb-12 16 10%
Commissioning 25-Jan-12 12 8%
Background Risk 19-Jan-12 6 4%
Total 154 100%
Approach
0
X <=31/05/2012
95%
0
0.2
0.4
0.6
0.8
1
22/03/12 09/04/12 27/04/12 15/05/12 02/06/12 21/06/12

Approach
order
Total 154 100%
Approach
0
X <=31/05/2012
95%
0
0.2
0.4
0.6
0.8
1
22/03/12 09/04/12 27/04/12 15/05/12 02/06/12 21/06/12

Approach
order
Total 154 100%
Approach
0
X <=31/05/2012
95%
0
0.2
0.4
0.6
0.8
1
22/03/12 09/04/12 27/04/12 15/05/12 02/06/12 21/06/12

Approach
order
Total 154 100%
Approach
0
X <=31/05/2012
95%
0
0.2
0.4
0.6
0.8
1
22/03/12 09/04/12 27/04/12 15/05/12 02/06/12 21/06/12

Approach
order
Total 154 100%
Approach
0
X <=31/05/2012
95%
0
0.2
0.4
0.6
0.8
1
22/03/12 09/04/12 27/04/12 15/05/12 02/06/12 21/06/12

Approach
order
Total 154 100%
Approach
0
X <=31/05/2012
95%
0
0.2
0.4
0.6
0.8
1
22/03/12 09/04/12 27/04/12 15/05/12 02/06/12 21/06/12

Approach
order
Total 154 100%
Approach
0
X <=31/05/2012
95%
0
0.2
0.4
0.6
0.8
1
22/03/12 09/04/12 27/04/12 15/05/12 02/06/12 21/06/12

Approach
order
Total 154 100%
Approach
Using Risk Driver Approach to measure
mitigation impacts
Wrap up
Very quick introduction to Risk Driver Approach
to Schedule Risk Analysis
Hopefully demonstrates the benefits of applying
a Risk Driver Approach to Schedule Risk Analysis
If it is to be adopted needs to flow through to
how Schedule Risk Workshops are conducted to
focus on key risk drivers and follow up risk
interviews
TBH Capital Advisers is developing a 2 day, hands
on workshop on the approach for anyone
interested in more detail

Introduction to Schedule Risk Analysis using a Risk Driver Approach

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Palisade Risk Conference

Introduction to Schedule Risk Analysis

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