pmi63 analyzing risk

7/23/2019 PMI63 Analyzing Risk

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EuroProjex [email protected] jrt/epm/mar06

EuroProjex

Project and Programme Management

Session 3:Analyzing Risk

Professor Rodney Turner

Co-author, Project Oriented Leadership

Gower, 2010



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Getting earlier completion

Cummulative

Probability

Outcome

100%

30%

10%

DecJun


Analyzing Risk

Simple example

Sensitivity analysis

Three point estimating

Monte-Carlo analysis


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Precedence network for constructing awarehouse

0 3 3

0 0 3

Design buildingand foundations

1 2 3

3 2 5

Prepare site andfoundations

3 2 5

3 0 5

Procuresteelwork

5 2 7

5 0 7

Erect Steelwork

-2


Three point estimating- without lead

Activity Min Med Max

Design 2 3 4

Procure 1 2 3

Foundation 2 3 5

Erect 2 3 5

Top path 6 9 14

Bottom path 5 8 11

Result 6 9 14


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Three point estimating- with lead

Activity Min Med Max

Design 2 3 4

Procure 1 2 3

Foundation 2 3 5

Erect 2 3 5

Top path 4 7 12

Bottom path 5 8 11

Result 5 7 12


Monte Carlo analysis

Duration (months)

100%

80%

60%

40%

20%

100%

80%

60%

40%

20%5%

13%

31%41%

8%2%

6 7 8 9 10 11

Probabilty

theduration

will equaloutcome

Probabiltytheduration isless thanoutcome


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Analyzing Risk

Simple example






Determine the response of the project as oneor more key parameters varies

Determine the value that flips the decision


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Value vs Discount factor

2% 4% 6% 8%

2000

-2000

-4000

-6000

-8000

-1000


Plot of two parameters

Terminal Value

Fuel Cost

135

10

12

15

2 Payback, years


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Analyzing Risk

Simple example





Projects are bound to fail

Work Pack Min ML Exp Max

70 100 105 150

P00 P40 P60 P99

Project Th Mn Min Est Exp Budgt Max Th Mx

700 950 1000 1050 1000 1200 1500

P00 P00 P05 P60 P80 P99 P100

Common assumption: Mode of Sum = Sum of Modes wrong

Actual: Mean of Sum = Sum of Means correct

Guess at Expected = Most optimistic + 4 x Mode + Most pessimistic

6


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ProbabilityofAchievingEstimate

Project Cost

Base Cost

Stretch Target

Target Cost

Sanction Cost

Benchmark or Historical Cost

Economic Feasibility Limit

Alliance Target Savings

Alliance Contingency

Client Contingency

Ex-ante Alliance Saving

0%

100%

Cost probability curve


Planned Value

Min

MLMax

Three point estimates

Start with planned value (Usually includes contingency)

min = plan - contingency (best case)

max = min + all risks + real contingency (worst case)

Most-Likely depends on probabilities & responses Calculate in simple cases

Otherwise use best guess / expert judgement

If possible use previous experience


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Analyzing Risk

Simple example





}=TOTAL DURATION

DISTRIBUTION

%PROBABILITYDISTRIBUTIONS

(3 point

estimates)

TASKS ACTIVITY

1

ACTIVITY

2

ACTIVITY

3

+ +

Et

cincidence

How does Monte Carlo work?

Apply three point estimates

Run model randomly sampling values

Calculate outturns with those values

Repeat a large number of times (1,000-10,000)

Sum to produce probability distributions


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END of SESSION 6 3

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pmi63 analyzing risk

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