Pertmaster Risk Analysis Software
Project Risk Analysis (with Pertmaster)
AACE Toronto Section October 2, 2008
Brought to you by:
Emerald Associates 2007
Presenter
Ian Nicholson, P.Eng. VP Solutions, Emerald Associates
Mechanical Engineer Primavera Systems Authorized Trainer, Consultant Pertmaster Authorized Trainer, Consultant iann@emerald-associates.com (403) 686-8957
Emerald Associates 2007
Page 1
Pertmaster Risk Analysis Software
My Company
Emerald Associates Calgary - Edmonton - Toronto Primavera Authorized Reseller for AB, SK, MB, ON Primavera Premier Solution Provider Pertmaster Solutions Partner for Canada Common Point Certified Partner On-Time Systems Reseller
Emerald Associates 2007
Emerald Associates Our Clients
Oil & Gas Suncor Energy Shell Canada & US British Petroleum Husky Petro-Canada Encana Trident Exploration CNRL Nexen Petro-Chemical Agrium Nova Chemicals Electrical Bruce Power OPG Connecticut Light & Power Manitoba Hydro Transalta ENMAX Government Milwaukee Metropolitan Sewerage District Capital Health Authority Transportation CPRail Contractors Ledcor Flint Stuart Olson Redpath Genivar Engineering Wardrop VECO Bantrel Fluor Jacobs Worley Parsons/Colt
Emerald Associates 2007
Page 2
Pertmaster Risk Analysis Software
Agenda
Why & How to Conduct Risk Analysis Risk Theory Pertmaster Application Real World Case Study
The advantage of not planning is that failure is not preceded by long periods of depression, worry and anxiety. - Anonymous
Emerald Associates 2007
Why is Schedule Risk Analysis Suddenly So Popular?
Because Common Platforms Common Coding Central Databases Have now made it possible to produce meaningful roll-ups and powerful, useable results But really because of -
Emerald Associates 2007
Page 3
Pertmaster Risk Analysis Software
Results like these
Emerald Associates 2007
Uncertain spend curves by period
Emerald Associates 2007
Page 4
Pertmaster Risk Analysis Software
Confident Prediction of Project Completion
Emerald Associates 2007
Why is this Suddenly so Important?
Because new US (SOx) and Canadian (MI-52-109) legislation means CEOs and CFOs must sign off personally that: All controls are in place and working That there are no known, unstated, factors that could affect the financial position of the company. And accounting methods are poor at predicting future risks from current commitments that could reflect on the financial statements.
Emerald Associates 2007
Page 5
Pertmaster Risk Analysis Software
How Does Risk Analysis Answer the Need?
1. Most existing software does static spreadsheet analysis without the dimension of time. 2. These spreadsheets are often created by accountants who tend to be focused on actual records. Even Earned Value is backward focused. 3. Pertmaster starts from the resource loaded schedule created by the project staff. 4. Schedules start from current actuals and look forward. 5. Such a schedule is rolling forward & constantly evolving as new events occur, exposures are evaluated and actual results received. 6. Thus the source data is the actual detailed data created and used by the people closest to the project.
But.
Emerald Associates 2007
The Other Side of the Coin
1. This is schedule based analysis so a weak schedule means an even weaker risk analysis. 2. However, it should reflect time, productivity & costs. 3. Perfect schedules are rare so it is a matter of deciding if the weaknesses are critical. 4. The risk process is fundamentally qualitative so dont get too hung up on theoretical quantitative procedures. 5. A slick report based on garbage is just toxic garbage.
Emerald Associates 2007
Page 6
Pertmaster Risk Analysis Software
So how do we get meaningful results?
Emerald Associates 2007
Pertmaster Risk Methodology
Schedule Review Risk Ready State Risk Risk Planning Reporting Review for logic & errors Risk Identification Estimate Uncertainty Risk Events: Risk Register Risk Develop Risk Model Management Map Risks to Activities Process Risk Risk Preliminary Analysis & Review Response Identification Impacted Risk Plan Monte Carlo simulation Final Model & Report Risk Assessment Risk Event plan Mitigation planning Based on: PMBOK Chapter 11, APM PRAM Guide, AS/NZ S4360
Emerald Associates 2007
Page 7
Pertmaster Risk Analysis Software
1 Interviews
Prepare Focus on critical or near critical sequences. Think about things not scheduled but impacting. Identify people to interview in each sector. Prepare a bullet point check list for each. Interview One-on-one is most effective Dont lead them, listen and prompt from the bullet points. Most important to them is what affects them most; it may not be important to the project
Emerald Associates 2007
2 Interviews
A Recent Example From Interview Sheets, Write up Interviews
Catch the essence only Identify risk categories Sort comments
Emerald Associates 2007
Page 8
Pertmaster Risk Analysis Software
3. Quantify the Risks
Take the risks identified and relate them to the schedule and quantify the impact Determine whether these risks are uncertainty or risk event
Emerald Associates 2007
4. Build the Model
Build the risk model
Emerald Associates 2007
Page 9
Pertmaster Risk Analysis Software
5. Review & Understand the Results
Emerald Associates 2007
6. Develop Mitigation Strategies
Emerald Associates 2007
Page 10
Pertmaster Risk Analysis Software
7. Implement Changes
Emerald Associates 2007
8. Repeat
A risk model is a living document It is important to update the risks and models frequently to obtain best results Make this part of your project management methodolgy Dont be a seagull!
Emerald Associates 2007
Page 11
Pertmaster Risk Analysis Software
An introduction to schedule risk analysis theory
Emerald Associates 2007
Overview of traditional CPM
10d
--/--/--
Predicts single completion date and cost Uses single values for activity durations and costs Does not take uncertainty into account
Emerald Associates 2007
Page 12
Pertmaster Risk Analysis Software
CPM with schedule risk analysis
10d
--/--/-8d 10d 15d
Quantifies probability of completing project on time and budget Uses estimates for durations and costs Takes uncertainty into account to predict a realistic end date
Emerald Associates 2007
Monte Carlo (Latin Hypercube) Simulation Triangle divided up into equal segments One segment randomly selected for each iteration Skew impacts distribution of results Reveal hidden critical paths
20 19 12 18 11 17 10 16 9 15 8 14 7 13 27 26 25 24 23 22 21
10 days 9 days 14 days 17 days 10 days
2 1
6 5 4 3
33 32 31 30 29 28
14 days
38 37 36 35 34
13 days
42 41 45 40 44 47 39 43 46 48
7 days 10 days 12 days
Min
Likely
Max
10 days
Emerald Associates 2007
Page 13
Pertmaster Risk Analysis Software
Better estimates for completion dates
Single-Path Schedule CPM schedule finishes on December 10, relies on combinations of durations that equal 70 days
Likelihood of the 10th December?
Emerald Associates 2007
Exercise: Find out chance of meeting 10th December
Emerald Associates 2007
Page 14
Pertmaster Risk Analysis Software
Why is there only a 18% chance?
Distributions are skewed most likely is nearer to minimum than maximum
There is a greater chance an activity will take more time rather than less time to complete.
Emerald Associates 2007
Effect of skewed distributions
What would be the chance of completing the project on time if each distribution was symmetrical?
50%
Therefore: With skewed distributions the chance of hitting a schedule end date will be less than 50%
Emerald Associates 2007
Page 15
Pertmaster Risk Analysis Software
Effect of parallel paths
This project also completes on December 10 Is it more or less risky than single path? Likelihood of December 10th finish?
Emerald Associates 2007
More riskyMerge Bias Effect
Emerald Associates 2007
Page 16
Pertmaster Risk Analysis Software
Combined effect of skew and parallel paths
Skewed Distributions
+
Parallel Paths
=
Typically less than 20% chance of hitting completion date
Emerald Associates 2007
Why run a quantitative analysis?
To help create more realistic schedules
To improve awareness of project risk and uncertainty
To identify schedule assumptions
Communication: Develop a better understanding of the schedule amongst the project team
Emerald Associates 2007
Page 17
Pertmaster Risk Analysis Software
Running a quantitative risk analysis
Emerald Associates 2007
Checking the schedule
Before considering a risk analysis, check the quality of the schedule Reports | Schedule Check Report Produces a report in your browser Can be summary or full report Content can be customized Can be badged
Emerald Associates 2007
Page 18
Pertmaster Risk Analysis Software
Schedule Checker
Checks schedule quality Constraints
Open-ended tasks Start to Finish links Negative lags Positive lags Long lags Broken logic Calendars on lags Link on summary tasks (MS Project) Aim: Reflect reality
Emerald Associates 2007
Run Analysis
What is the chance of completing our project on time?
Emerald Associates 2007
Page 19
Pertmaster Risk Analysis Software
Understanding Project Drivers
Emerald Associates 2007
Identify High Risk Activities
The critical path is useful Determines the earliest the project can finish Delay on the critical path delays the project The path that most deserves risk management Duration Sensitivity Shows how closely correlated changes in one activity are to changes in the overall project Criticality Index During the risk analysis, the number of times an activity was critical is recorded The percentage of iterations each activity was critical = Criticality Index Cruciality Product of Sensitivity and Criticality
Emerald Associates 2007
Page 20
Pertmaster Risk Analysis Software
Exercise: Criticality Index (1 of 1)
Unit 1 no longer critical but has more uncertainty (company has not made this unit type before)
Unit 2 given less uncertainty (company has made similar units before)
Unit 2 is on the Traditional Critical Path should we concentrate on Unit 2?
Emerald Associates 2007
Criticality Index Shows Unit 1 more risky!
Risk | Run Risk Analysis CPM shows we should focus on Unit 2?
Risk Analysis shows we should focus on Unit 1 Traditional CPM can Mask Risks!
Emerald Associates 2007
Page 21
Pertmaster Risk Analysis Software
Criticality/Sensitivity/Cruciality
Criticality identifies activities that are likely to be on the critical path given the uncertainty in the schedule. Sensitivity relates activity changes to overall schedule changes Therefore Reduce durations and/or uncertainty on activities with a high sensitivity/cruciality to improve the chance of completing the project on time. High Cruciality: If task is delayed, project is delayed. Focus on the tasks with high cruciality index first.
Emerald Associates 2007
Revising Estimates
If the contract has already been signed, we need to improve chances of meeting the contracted date The tornado helps us: Risk | Tornado Graph
Emerald Associates 2007
Page 22
Pertmaster Risk Analysis Software
Revising Estimates
As Refurbish Premises is the biggest driver to the project duration, this is the best place to mitigate the risk We can reduce its worst case by obtaining a guarantee from the contractor Change Maximum Duration
Emerald Associates 2007
Revising Estimates
Analysis now shows new top driver
Emerald Associates 2007
Page 23
Pertmaster Risk Analysis Software
Questions..
Questions? Time Check Real Life Example
Emerald Associates 2007
Page 24
