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Cost & Schedule Risk Assessment 6.0. Timothy J. Havranek, MBA, PMP Leigh Hostetter, PMP

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Cost & Schedule Risk Assessment

Using @Risk 6.0

Timothy J. Havranek, MBA, PMP Leigh Hostetter, PMP

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What If?

2

In Business and in Life:

We always made the

best possible decisions,

and

Implemented those

decisions in the most

efficient manner

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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

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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

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The Project Management Process

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Why does project management methodology matter?

14/11/2012

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Project Planning and Control

14/11/2012

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

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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

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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

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 Determine the Resources and Quantity of Resources Required for Work Packages

 Estimate the Cost of Work Packages

 Estimate the Duration of Work Packages

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 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

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How is this project doing? 14/11/2012 Planned Cost Actual Cost Current Time TIME COST

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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

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Earned value metric calculations provide holistic understanding of project progress

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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

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Scheduling Best Practices

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General Process for Developing Work Breakdown Structures

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WBS Best Practices

14/11/2012

 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

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 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

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 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

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Case Study

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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

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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)

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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

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Model Demonstration and Results

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Model Cost Results

14/11/2012

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

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Greenville Site Demolition and Remediation Cost

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Greenville Site Finish Date

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Cost Tornado Diagram

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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

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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

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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

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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

References

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