February 28 2020 0Comment

Cost and Schedule Risk Analysis

Any project is expected to be completed within certain period, and if the project gets delayed it results in increase in cost of the project and contractor may have to face penalty for causing delay.

Hence it is very important for both the owner and the contractor to follow the project schedule. Scheduling is an important part of the project management. Planning and scheduling of construction activities helps the engineers to complete the project in time and within the budget.

However, construction activities possess uncertainties that may cause delay in performing certain activities or even increase in cost of the project. Hence it is very important to develop a risk management process which deals with the risks in execution that affects the project schedule.

 

Cost and Schedule risk analysis

Cost and schedule risk analysis evaluates the likely impact of uncertainty and individual risks on overall project costs and time to completion. For accurate forecasting and project control, an understanding of the impact that risks will have upon the schedule and budget is essential, making cost and schedule analysis valuable to any project manager.

Why Conduct Cost and Schedule Risk Analysis?

Applying quantitative risk analysis to the process of setting reasonable targets for project finish dates and cost produces results not available from the schedule and the cost estimates themselves.

It can more accurately measure how likely a project is to finish on time and on budget and which risks are the cause of overruns. It can also indicate how much contingency is required to make budget costs by confident and time deadlines with success.

The method of schedule problem diagnoses and discover scheduling principles to critical path, total float and horizontal and vertical traceability is important in risk assessment.

MESLI Consulting is suggesting the below steps to be considered to have the best results when you are working with Primavera Risk Analysis.

Our experts will use benchmarking, historical data and expert judgment to have an accurate input during the preparation of schedule with 14 DCMA schedule check. So, we could have a precise output and be confident about risk analysis.

  • Scheduling (Schedule Check)
  • Budgeting (Resources)
  • Uncertainty Analysis (Durations)
  • Risk Registry (Assessment)
  • Simulation (Mont Carlo)
  • Risk Analysis (Reports, Distribution Analyzer, Tornado Graphs, Scatter Plot)
  • Response Plan (Risk Control)

Practical differences between uncertainty and Risk

Uncertainty is inherent to a task.

  • Example: digging a trench is scheduled for 10 days. It may only take 8 or could take up to 12 days.
  • We will use three-point distribution analysis to achieve a better estimation

 

Risks are events that may or may not occur and could affect a task.

  • It can change effect on task duration, cost and quality.

Example: there is a 5% chance of flooding, which could delay the digging of the trench by 5 to 8 days.

  • It can change the sequence of activities.

Example: there is a 15% chance of problems for supplying a pump and replacing with a new brand, which could lead to redesign of power supply equipment.

Correlation

Two tasks in a project are similar. Experience has shown that if one task takes a long time then it is likely that the other will to. This is an example of a positive correlation between the task durations.

Adding correlation helps you avoid modelling situations that are not realistic. For example, correlating the durations of the tasks will reduce the probability of one task being done quickly and the other slowly.

By default, all distributions have zero correlation in Risk Analysis Software.

we could use “Task User Fields” to define code for activities to create a template with correlations between activities (Job Phases).

Qualitative analysis

Qualitative analysis is used to prioritize risks according to their severity so that the risks can be further subjected to quantitative analysis. Following table shows the result of qualitative analysis.

After calculation of optimistic and pessimistic time, all the three durations are inserted in software. An output is defined, and beta simulation is run at 10000 iterations. Following table shows calculation of durations by Monte-Carlo simulation.

Tornado – find priority for the risks

  • About Sensitivity

Sensitivity can be measured for task cost and the task duration. It gives an indication of how much the cost and duration of each task affects cost and completion of other tasks or the entire project.

It can be used for identifying tasks that are most likely to cause delay or increase the cost of a project. The sensitivity values for each task can be displayed in a Gantt Chart column or in the Tornado Graph.

  • Default Duration Sensitivity

The duration sensitivity is a measure of the correlation between the duration of a task and the duration of the project.

The task with the highest duration sensitivity is the task that is most likely to increase the project duration. Sensitivity values ranges from -100% to +100%.

  • Default Cost Sensitivity

The cost sensitivity is a measure of the correlation between the cost of a task and the cost of the project. It is like the duration sensitivity but looks at costs instead of durations.

scatter plot

The scatter plot shows the relationship between two outputs of a risk analysis. Each point on the scatter plot represents two values for one iteration of the risk analysis. The total number of points is equal to the number of iterations that were run in the risk analysis.

Probabilistic Cash Flow

Critical forecasting, long term budgeting, and EVMS reporting is reported through the probabilistic cash flow.

In addition to reporting/overlay options such as percentile date shading, Pert master includes the ability to filter the probabilistic cash flow based upon specific resources/cost classes within the project plan.

Important Items and steps in Risk Registry

  • Cost (Impact on Task, WBS or Project Budget)
  • Schedule (Impact on Duration of Tasks, WBSs or Project)
  • Performance (Meeting Acceptance Criteria)
  • Scope (Changing the scope of task or project)
  • Quality (Leading to poorer quality or better quality)
  • Risk Scoring: Probability & Impact
  • Analyse the matrix: Top List, Watch List
  • Quantitative Assignment (Choosing the distribution function)
  • Build Impacted Risk Plan
  • Distribution Analyzer

The simplest and most well-known tool for risk analysis is Risk Matrix or Risk Assessment Matrix (RAM) or Probability and Impact Matrix.

Without clear risk scales, a RAM is worthless. An even number of risk scales is preferred (5X5). Sometimes a 4D risk matrix is used:

  • Probability
  • Impact
  • Manageability (cf. exogenous risks)
  • Urgency

Other Fields on Risk Registry

Owner – Who is responsible for the risk (optional)

Cause – Details of the cause of the risk (optional)

Description – A description of the risk (optional)

Effect – Details of the effect of the risk (optional)

RBS – Text field for entering Risk Breakdown Structure / Risk Category (optional) Organizational, Environmental, Political, Economic, Operational, Technological

Status – Whether the risk is Proposed, Open, reject (Closed), Managed (Closed) or Impacted (Closed). A closed risk is not used in the analysis. Open and Proposed risks can be optional included or excluded when building the impacted risk plan

Manageability – How manageable the risk is. Can be customized in the Risk Scoring and can be used to modify risk scores (optional)

Proximity – How close the risk is. Can be customized in the Risk Scoring (calculated automatically)

Start Date – The date the risk starts

 

End Date – The date the risk ends

Exposure – Used to record the exposure of the risk on the project. See Risk Register – Exposure Plan

Show in Quantitative – Include the risk in the Quantitative tab. This can be unchecked for any risks you do not intend to map to tasks in the project thereby making the list of risks shorter in the quantitative tab

Quantified – Check this option to allow the impact of the risk on individual tasks to be customized from the qualitative defaults.

A sample risk registered project is shown in below figure:

Response Strategies

The type of mitigation actions to be implemented after risk registration:

Threats: (Cost Increase, Bad weather, HSE, shipment, …)

Avoid – Change the project so the risk is avoided. This will usually reduce the post-mitigation probability to zero. (Reimbursable Cost)

Transfer – Transfer the risk to another party. (Insurance, Lump Sum, Guarantee for Equipment)

Reduce – Reduce the probability and/or impact of the risk. (CO2 Capsules, Inspection, HSE)

Accept – Accept the risk and take no mitigation action. Post-Mitigation impacts are set to the same values as Pre-Mitigation. (Passive or Active, Use Buffer). When Accept is chosen the post-mitigation qualitative and quantitative assessments are greyed out and linked to the pre-mitigation assessments.

Opportunities: (Time reduce, New Technology, Solutions, Resources…)

Exploit – Actively seek out the opportunity.  Eliminate uncertainty associated with a particular risk

Facilitate – Help another party increase the likelihood of the opportunity occurring. (Joint Venture)

Enhance – Increase the probability and/or impact of the opportunity. (Resources)

Reject – Reject the opportunity and take no actions.

Actions must be done facing different kind of Risks. if High: Response Plan, Contingency Plan, if Medium: Response Plan and if Low: Accept.

Important points in Risk Assessment

MESLI Consulting is proposing following headlines to be considered during assigning and analysing Risks into a project:

The purpose of Schedule Risk Analysis – the Three Point

– How likely is the project will be delivered On Time?

– How much Contingency Reserve of Time do we Need?

-Which are the most important Risks for Mitigation?

Simulating a Simple Uncertain Activity

  • Risk have not been represented
  • Some Risks Cause Recovery Activities to Occur

Simulating a Simple Uncertain Activity

– Creating a Population of Projects Just Like Our Own

– Probability is the Language of Uncertainty

-The 3-point Estimate – Low, Most Likely and High Durations Possible

– Probability Distributions Available

Combining Distributions along a Schedule Path Using Monte Carlo simulation

Adding Static Durations down a Path is Not Accurate

  • Probability Distributions must be Combined with Simulation
  • The Most Likely Completion Date, the P-80 Date

Gathering Good Quality Project Schedule Risk Data

– Types of Data to be Collected

– Organizational and Individual Estimating Bias

– Interviewing for Schedule Risk Data

Risk Criticality

– Where is the Risk in the Schedule?

– Which Activities or Paths are Most Likely to Delay the Project?

Parallel Path and their Join Points

– The “Merge Bias” causes More Risk at Merge Points than Any Merging path

– The More Merging Paths the More Risk

Constraints and their effects on the Risk Analysis

– Why are Constraints Hazardous to Your Simulation?

– Some Constraints are Worse than Others for Simulation

Correlations between Activity Durations

–  What Causes Activity Durations to “Move Together”?

– Handling Correlations in Simulation

The Risk Driver Method that uses the Risk Register Risks

– New Method for Driving the Uncertainty in Activity Durations

– Uses the risk Register Risks Directly

– Allows the use of a Risk’s Probability of Occurring

– Assigns Risks to Tasks and Simulate

– Prioritizing Risks rather than Activities or Paths for Risk Mitigation

Conclusion

MESLI Consulting develops the methodology for schedule risk analysis of a project. The project is analysed to identify the risks that affect the project completion time, and to determine the probability of completing the project within the due date. By qualitative and quantitative analysis with the help of tools such as Monte-Carlo simulation.

Risks are identified by both literature review and by interviewing site personals. Any factor which delays a certain activity is considered as a risk. Then by help of matrix, force of risks are decided. Further analysis gave the simulated completion time within which project should have been completed.

For the probability of completing the project within the contract date, the simulation using Primavera Risk Analysis had shown that there is zero probability for the project to be completed within specified date (most likely duration).

This shows that the finish date based on most likely durations that had been used by the project management team was not remarkable in an uncertainty environment; it is unlikely to be achieved. The uncertainties lead the project management to risks and problems. The project schedule should be revised regularly, and the changes of finish date may occur repeatedly.

See the “Risk Analysis” page for additional information.

mesliconsulting

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