Cost & Schedule Risk Assessment
Using @Risk 6.0
Timothy J. Havranek, MBA, PMP Leigh Hostetter, PMP
What If?
2
In Business and in Life:
We always made the
best possible decisions,
and
Implemented those
decisions in the most
efficient manner
Rank projects based on risks and opportunities Develop optimum project strategies
Transform optimum project strategies into tactical plans Track project implementation; provide early warning of variances
Develop meaningful dashboards and increase transparency Forecast project completion dates and costs
Improve portfolio performance metrics Identify portfolio cost and schedule drivers
Capture lessons learned to inform future planning Manage project and portfolio risks
Business Solutions & Risk Management Services
Project Management Consulting
Multi-Criteria Decision Analysis
Cost & Schedule Risk Analysis Portfolio Risk Ranking Project Controls Earned Value Analysis Business Analytics PM Information Systems Project Dash Boards Probabilistic Cost Estimation Process & Tools for Reducing Costs and Increasing Profits
The Project Management Process
Why does project management methodology matter?
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Project Planning and Control
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Develop Work Breakdown Structure
Define resources, costs, and durations
Schedule work packages using network logic
Team consensus on baseline cost-loaded
schedule
Plan
Track progress against the baseline
Analyze Earned Value metrics
Corrective action and change management
The Work Breakdown Structure (WBS)
A deliverables-oriented decomposition of the work to be
executed by the project team to accomplish project objectives and create the desired deliverables with each descending level representing an increasingly detailed definition of the project work
Deliverable: Any measurable, tangible or verifiable item that
must be produced to complete a project
In Practical Terms
The WBS is what to deliver
It is a fundamental tool to properly manage the project scope
Common language for all team members Defines and outlines scope
Work Breakdown Structure
14/11/2012 Site Project C Project B Project A Excavation Dewatering
Site Prep Restoration
Site Controls Setup Build Access Road Remove and Stockpile OB Build Decon Pad
Determine the Resources and Quantity of Resources Required for Work Packages
Estimate the Cost of Work Packages
Estimate the Duration of Work Packages
Shows how changes in one task impact other tasks
Facilitates scheduling (and rescheduling) of people and equipment Promotes analysis of tradeoffs and potential corrective action
How is this project doing? 14/11/2012 Planned Cost Actual Cost Current Time TIME COST
Management Reserve Earned Value Curve
14/11/2012 Planned Value BAC Actual Cost Schedule Variance Cost Variance EAC
Current Time Planned Completion Date Estimated Completion Date TIME COST Earned Value
Earned value metric calculations provide holistic understanding of project progress
Earned Value Analysis
*Source: Modified from Practice Standard for Earned Value Management 2005
Early warning system
• Early corrective action – cost/schedule variance correction • Scope management – change orders for new scope
Scheduling Best Practices
General Process for Developing Work Breakdown Structures
WBS Best Practices
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The names of the WBS elements should be easy to understand and convey meaning to all project participants and stakeholders
The work packages should account for 2 to 10% of the total project budget (exceptions can occur for very large or very small projects) Activities or should not have durations beyond two project reporting
periods
Do not use the same task heading for activities performed by two separately responsible groups
Include task and/or work packages in the WBS for work that will performed outside parties, even if they do not involve a cost (regulatory review, peer assists)
Break down items such as permits, regularly scheduled field events and reports into their component activities
Whenever possible obtain estimates from individuals who have performed similar activities in past
Have people who are responsible for performing a given task provide duration estimates
Make all estimates realistic. It is best to consider most likely amount of time needed, without a pessimistic or optimistic view In general assume a normal workweek and normal workday Use days as the time unit
Be willing to breakdown into smaller WBS elements if there is difficulty in estimating the duration of a particular activity
Do not assume that office workers will have 8 hours of uninterrupted time. Assume that office workers are 70% productive and adjust durations accordingly
Duration Estimating Best Practices
Do not link Summary Tasks
PM and Oversight tasks
Start when project starts and finishes when the last activity finishes
Set Constraints as little as possible
Instead, consider using Deadlines as they do not directly affect project scheduling dates
For risk modeling you should not have any “must start” , “must finish or similar constraints
Maximize concurrency whenever possible
Multiple finish to start activities off a given milestone
Use of start to start logic connectors
Minimize discretionary dependencies
Network Scheduling Best Practices
Case Study
Site Background Information
Former specialty petroleum manufacturing facility Objective to prepare site for sale and use as mixed
commercial / residential redevelopment Project scope of work includes
Removing and properly disposing of asbestos and regulated wastes from manufacturing plant
Demolishing the building structure
Excavating and properly disposing of soil having concentrations above residential standards
Dewatering during excavation and discharging water to a publically owned treatment works
Obtaining all necessary permits prior to performing field activities
Business plan called for completing project by September 30, 2011 at cost of $4.6 million
Risk Elements included in Model Structure
Probabilistic cost and duration input parameters Probabilistic resource assignments (i.e. employs
RiskProjectResouceUse function) and resource unit prices Durations for Level of effort or “hammock task” such as
project management or driven by the uncertain duration of other tasks and network logic
Project risk register to address low probability high impact events (i.e., makes use of RiskProjectAddDelay function)
General Notes on Environmental Remediation Projects
Notorious for going over budget and schedule
One of the largest uncertainties is always associated with the volume of impacted material (soil, sediments) that must be addressed
Another large source of uncertainty is permitting and regulatory approvals.
The percentage of cost for project management higher than in other construction industries
Model Demonstration and Results
Model Cost Results
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Statistic Cost Duration Fnish Date
Minimum $4,220,738 123 days 8/29/2011 Maximum $6,293,115 388 days 9/13/2012 Mean $4,831,976 161 days 10/23/2011 Std Deviation $253,967 29 days 42 Days
Mode $4,459,579 150 days 10/6/2011 10% Perc $4,564,216 138 days 9/20/2011 25% Perc $4,660,188 145 days 9/29/2011 50% Perc $4,789,165 153 days 10/11/2011 75% Perc $4,948,141 165 days 10/27/2011 90% Perc $5,159,512 200 days 12/19/2011
Greenville Site Demolition and Remediation Cost
Greenville Site Finish Date
Cost Tornado Diagram
Greenville Probabilistic Planned Value Box Plot 14/11/2012 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 M a r-2 0 1 1 A p r-2 0 1 1 May -2 0 1 1 J u n -2 0 1 1 J u l-2 0 1 1 A u g -2 0 1 1 S e p -2 0 1 1 Oc t-2 0 1 1 N o v -2 0 1 1 D e c -2 0 1 1 J a n -2 0 1 2 Feb -2 0 1 2 M a r-2 0 1 2 Cu m u la ti ve Co st $Mil lion Maximum 80 Perc% Mean 20 Perc% Minimum
Trend Data for Probabilistic Earned Value Analysis 14/11/2012 0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 Cu m u la ti ve Co st Deterministic Minimum 20 Perc% Mean 80 Perc% Maximum
Actual Results
Project was completed for a cost of $ 4.9 Million and in May of 2012
Soil volume was 20% greater than planned
The selected contractor had an injury even at another site which created a stop work order at this site
Summary Cost Schedule Risk Analysis
Powerful tool for communicating potential cost and schedule outcomes
Enhances ability to identify and manage cost and schedule drivers
Simplifies estimating cost trends and improves net present value analysis
Opens the door for probabilistic earned value analysis – control chart approach
CSRA should remain dynamic and re-visited throughout project life cycle