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
ADVISERS
CAPITAL ADVICE FOR THE LIFE OF THE PROJECT
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 Rishi’s
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
Dealing with Schedule Uncertainty
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%
Dealing with Schedule Uncertainty
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)
Best Case
Most Likely
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
Distribution for Complete/Finish
1
X <=14/06/2012
95%
0
0
0.8
Schedule Contingency P80
0.6
0.4
P80 Completion
Date
0.2
Deterministic
Completion Date
0
01/04/12
26/04/12
21/05/12
15/06/12
10/07/12
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
100% correlation using Risk Driver
approach
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%
Less than 100% correlation using Risk
Driver approach
Risk No 1
Risk No 2
Risk No 3
P=25%
Factors
.8, .95, 1.05
P=40%
Factors
.95, 1.1, 1.15
P=45%
Factors
1.0, 1.1, 1.2
Duration
Activity A
Duration
Activity B
Presence of non common
risks reduces Correlation
between durations of
Activity A and B to 48%
Mechanics of the 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
Mechanics of the Risk Driver Approach
Step 3: Assign risks to activities
Risks Assigned
Activities
Approvals
Design phase
LLT Procurement
Construction
Commissioning
Design
EME HR
Regulatory LLT Suppliers
Productivity shortages
Government
Construction
Infrastructure
Logisitics
Delivery
Risks Assigned
Activities
Approvals
Design phase
LLT Procurement
Construction
Commissioning
Design
EME HR
Regulatory LLT Suppliers
Productivity shortages
Government
Construction
Infrastructure
Logisitics
Delivery
Risks Assigned
Activities
Approvals
Design phase
LLT Procurement
Construction
Commissioning
Design
EME HR
Regulatory LLT Suppliers
Productivity shortages
Government
Construction
Infrastructure
Logisitics
Delivery
P=100%
Background risk, estimating accuracy
0.95
1.0
1.05
Risks Assigned
Activities
Approvals
Design phase
LLT Procurement
Construction
Commissioning
Design
EME HR
Regulatory LLT Suppliers
Productivity shortages
Government
Construction
Infrastructure
Logisitics
Delivery
P=100%
Background risk, estimating accuracy
0.95
1.0
1.05
Risks Assigned
Activities
Design
EME HR
Regulatory LLT Suppliers
Productivity shortages
Government
Construction
Infrastructure
Logisitics
Delivery
Approvals
Design phase
LLT Procurement
Construction
Commissioning
0.9
1.0
P=35%
P=40%
P=30%
1.2
1.0
P=25%
1.1
0.8
1.3
1.0
1.5
1.2
P=15%
1.5
1.0
1.75
1.1
1.3
1.2
P=45%
1.5
1.75
Prioritising Schedule Risks using Risk Driver
Approach
Distribution for Complete/Finish
X <=31/05/2012
95%
0
1
0.8
0.6
Prioritising Schedule Risks using Risk Driver
Approach
Deterministic Date:
0.4
0.2
0
22/03/12
09/04/12
27/04/12
15/05/12
02/06/12
Background plus All Risks
Risks removed in Prioirty
order
LLT Procurement
Approvals
Construction
21/06/12
Design Phase
Construction
Commissioning
Background Risk
Total
19-Jan-12
P80
Impact on P80 Date
21-Jun-12 Days % of Total
14-May-12
10-Apr-12
13-Mar-12
22-Feb-12
6-Feb-12
25-Jan-12
19-Jan-12
38
34
28
20
16
12
6
154
25%
22%
18%
13%
10%
8%
4%
100%
Prioritising Schedule Risks using Risk Driver
Approach
Distribution for Complete/Finish
X <=31/05/2012
95%
0
1
0.8
0.6
Prioritising Schedule Risks using Risk Driver
Approach
Deterministic Date:
0.4
0.2
0
22/03/12
09/04/12
27/04/12
15/05/12
02/06/12
Background plus All Risks
Risks removed in Prioirty
order
LLT Procurement
Approvals
Construction
21/06/12
Design Phase
Construction
Commissioning
Background Risk
Total
19-Jan-12
P80
Impact on P80 Date
21-Jun-12 Days % of Total
14-May-12
10-Apr-12
13-Mar-12
22-Feb-12
6-Feb-12
25-Jan-12
19-Jan-12
38
34
28
20
16
12
6
154
25%
22%
18%
13%
10%
8%
4%
100%
Prioritising Schedule Risks using Risk Driver
Approach
Distribution for Complete/Finish
X <=31/05/2012
95%
0
1
0.8
0.6
Prioritising Schedule Risks using Risk Driver
Approach
Deterministic Date:
0.4
0.2
0
22/03/12
09/04/12
27/04/12
15/05/12
02/06/12
Background plus All Risks
Risks removed in Prioirty
order
LLT Procurement
Approvals
Construction
21/06/12
Design Phase
Construction
Commissioning
Background Risk
Total
19-Jan-12
P80
Impact on P80 Date
21-Jun-12 Days % of Total
14-May-12
10-Apr-12
13-Mar-12
22-Feb-12
6-Feb-12
25-Jan-12
19-Jan-12
38
34
28
20
16
12
6
154
25%
22%
18%
13%
10%
8%
4%
100%
Prioritising Schedule Risks using Risk Driver
Approach
Distribution for Complete/Finish
X <=31/05/2012
95%
0
1
0.8
0.6
Prioritising Schedule Risks using Risk Driver
Approach
Deterministic Date:
0.4
0.2
0
22/03/12
09/04/12
27/04/12
15/05/12
02/06/12
Background plus All Risks
Risks removed in Prioirty
order
LLT Procurement
Approvals
Construction
21/06/12
Design Phase
Construction
Commissioning
Background Risk
Total
19-Jan-12
P80
Impact on P80 Date
21-Jun-12 Days % of Total
14-May-12
10-Apr-12
13-Mar-12
22-Feb-12
6-Feb-12
25-Jan-12
19-Jan-12
38
34
28
20
16
12
6
154
25%
22%
18%
13%
10%
8%
4%
100%
Prioritising Schedule Risks using Risk Driver
Approach
Distribution for Complete/Finish
X <=31/05/2012
95%
0
1
0.8
0.6
Prioritising Schedule Risks using Risk Driver
Approach
Deterministic Date:
0.4
0.2
0
22/03/12
09/04/12
27/04/12
15/05/12
02/06/12
Background plus All Risks
Risks removed in Prioirty
order
LLT Procurement
Approvals
Construction
21/06/12
Design Phase
Construction
Commissioning
Background Risk
Total
19-Jan-12
P80
Impact on P80 Date
21-Jun-12 Days % of Total
14-May-12
10-Apr-12
13-Mar-12
22-Feb-12
6-Feb-12
25-Jan-12
19-Jan-12
38
34
28
20
16
12
6
154
25%
22%
18%
13%
10%
8%
4%
100%
Prioritising Schedule Risks using Risk Driver
Approach
Distribution for Complete/Finish
X <=31/05/2012
95%
0
1
0.8
0.6
Prioritising Schedule Risks using Risk Driver
Approach
Deterministic Date:
0.4
0.2
0
22/03/12
09/04/12
27/04/12
15/05/12
02/06/12
Background plus All Risks
Risks removed in Prioirty
order
LLT Procurement
Approvals
Construction
21/06/12
Design Phase
Construction
Commissioning
Background Risk
Total
19-Jan-12
P80
Impact on P80 Date
21-Jun-12 Days % of Total
14-May-12
10-Apr-12
13-Mar-12
22-Feb-12
6-Feb-12
25-Jan-12
19-Jan-12
38
34
28
20
16
12
6
154
25%
22%
18%
13%
10%
8%
4%
100%
Prioritising Schedule Risks using Risk Driver
Approach
Distribution for Complete/Finish
X <=31/05/2012
95%
0
1
0.8
0.6
Prioritising Schedule Risks using Risk Driver
Approach
Deterministic Date:
0.4
0.2
0
22/03/12
09/04/12
27/04/12
15/05/12
02/06/12
Background plus All Risks
Risks removed in Prioirty
order
LLT Procurement
Approvals
Construction
21/06/12
Design Phase
Construction
Commissioning
Background Risk
Total
19-Jan-12
P80
Impact on P80 Date
21-Jun-12 Days % of Total
14-May-12
10-Apr-12
13-Mar-12
22-Feb-12
6-Feb-12
25-Jan-12
19-Jan-12
38
34
28
20
16
12
6
154
25%
22%
18%
13%
10%
8%
4%
100%
Prioritising Schedule Risks using Risk Driver
Approach
Distribution for Complete/Finish
X <=31/05/2012
95%
0
1
0.8
0.6
Prioritising Schedule Risks using Risk Driver
Approach
Deterministic Date:
0.4
0.2
0
22/03/12
09/04/12
27/04/12
15/05/12
02/06/12
Background plus All Risks
Risks removed in Prioirty
order
LLT Procurement
Approvals
Construction
21/06/12
Design Phase
Construction
Commissioning
Background Risk
Total
19-Jan-12
P80
Impact on P80 Date
21-Jun-12 Days % of Total
14-May-12
10-Apr-12
13-Mar-12
22-Feb-12
6-Feb-12
25-Jan-12
19-Jan-12
38
34
28
20
16
12
6
154
25%
22%
18%
13%
10%
8%
4%
100%
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