1
Scope Development
What Went
Wrong
Right?
Recognizing Risk Impacts
on Cost and Schedule
Course Outline
Session 1: Overview of the Risk Management
Process
Session 2: Determining Cost & Schedule Impacts
from Risks
Session 3: Calculating Contingency Using Range
Estimating
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Scope Development
Session One
PMI – Professional Development Days
Risk is . . .
an EVENT that
may or may
Quantifying Risk
• Very Unlikely (VU)
• Unlikely (U)
• Possible (P)
• Likely (L)
• Very Likely (VL)
PMI – Professional Development Days
Quantifying Risk
•
Negligible
•
Marginal
•
Significant
•
Critical
•
Crisis
ASSESS CONSEQUENCES
Risk Level Matrix
SEVERITY Negligible Marginal Significant Critical Crisis
PROBABILITY
Very Likely Moderate High High High High
Likely Moderate Moderate High High High
Possible Low Moderate Moderate High High
Unlikely Low Low Moderate Moderate High
PMI – Professional Development Days
Cookbook or Chaos
Do we all have a different risk
perception or tolerance?
Project Risk Assessment Scenario
Consider the following: The concrete on the project is on the critical path. You are currently 5 days behind
schedule with an unhappy client. There is a slab placement scheduled for tomorrow. The chance of showers is 50%. Would you place the slab? If not, at what % would you place?
Now, the placement is a wall. Would you place the concrete?
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Scope Development
Session Two
Impact of Risks on Cost & Schedule
•
Eliminate / Avoid
•
Mitigate / Reduce
•
Transfer
•
Sharing
•
Insurance
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Risk Avoidance
Eliminate the potential cause(s) of the Risk:
•
Avoid risk by not bidding the project•
Perform the activity/task a different wayRisk Reduction
Reduce Probability
- replace used equipment with new - change method of construction - perform a sensitivity analysis - conduct preventative maintenance - benchmark Reduce Consequences - obtain spares
- review schedule for resequencing, paralleling activities, or a different approach
- work overtime
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Risk Transfer
•
Includes transferring risk to entities that are morecapable of controlling it
•
Subcontract specialty work•
Subcontract work to more productive subs•
Negotiate contract terms at formation of contract (bidRisk Sharing
•
Share risk with the owner•
Partnering•
Different contract types share/reduce risk- Cost Reimbursable (More risk on owner)
- Unit Price (Quantity to Owner, Productivity to Contractor) - Cost Plus Incentive
PMI – Professional Development Days
Insurance
•
Some risks are besthandled through insurance which is actually risk
transfer
•
Workers Comp•
Builder’s Risk•
General LiabilityAccept & Manage Risk
•
Accepted risk must be managed•
Management practices include:- Contingency planning
- Proper staffing (Experienced teams & leaders) - Strong Programs
- Strong Project Controls - Training
PMI – Professional Development Days
Risk Impact Determination
•
Impact of handling strategies
- cost
- schedule
Residual Risk
RESIDUAL RISK
The risk that remains after handling strategies have been implemented.
• there is no residual risk if risk is avoided, transferred, or insured
• the residual risk is the same as the original risk if accepted
• the residual risk Probability and/or Consequences should be reduced if actions were effective and appropriate
PMI – Professional Development Days
Risk Impact Determination
WHAT IS
Contingency Definition
•
CONTINGENCY: A specific allocation of resourcesadded to the estimate or schedule for unknowns due to an evaluation of the possibility, probability, risk and
consequences for overrunning the base estimate.
•
Contingency components• Schedule uncertainty: related to inherent variability in the schedule
• Estimate uncertainty: related to inherent variability in the estimate • Residual risk: related to “risk events” not fully mitigated in the risk
PMI – Professional Development Days
Risk Impact Determination
HOW DO YOU
CALCULATE A
RISK-BASED
CONTINGENCY?
Contingency Determination
Range Estimating
- One of many probabilistic approaches to cost estimating and/or scheduling
- Determines probabilities associated with cost overruns and/or schedule delays
- Mathematically determines contingency - Based on Monte Carlo simulation
PMI – Professional Development Days
Work Group Example
Instructions...
For each of the following questions (to be provided) please provide a 90% range response (i.e., a range in which you are 90% certain that the true value lies within).
• The goal is NOT to test your knowledge of
useless trivia, but to practice estimating under uncertainty.
PMI – Professional Development Days
Analysis of Responses
• There were 10 questions
• Each were asked to be 90% confident
• Therefore, if perfectly calibrated, the average
number of correct responses should be 9
• The actual number of average correct
responses was …
Calibration Issues
• of 415 tests given, there was an average of
6.54 misses (3.46 correct responses)
• Why? Imperfect calibration. Overconfidence
is the most prevalent bias associated with estimating under uncertainty.
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Scope Development
Session Three
Risk & Opportunity Management:
A CONTINUOUS process throughout lifecycle
Bid or No Bid Submit Proposal Prospect Selection Prospect Phase Proposal Phase Execution Phase Knowledge Management
Bidding Negotiating Executing Closing
Award R&O Identification Qualitative Assessment Handling & Response Impact Determination Monitoring & Management R&O Reporting R&O Plan
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CLOSING THOUGHTS
•
Managing project risk is not a discrete one time event•
Must be kept active throughout the project life-cycle,Identify and Reduce Risk
* No animals were harmed in the making of this graphic
And to think I could have used the culvert!!
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