Cost & Schedule Risk Assessment Using @Risk 6.0

Timothy J. Havranek, MBA, PMP

Leigh Hostetter, PMP

24 October 2012

What If?

2

In Business and in Life:

We always made the best possible decisions, and

Implemented those decisions in the most efficient manner

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

BSRM Helps Clients

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

The Project Management Process

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Why does project management methodology matter?

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Varying versions exist but cartoon seems to have been documented first in John Oakland's book Total Quality Management.

Project Planning and Control

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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

Do – Check – Assess

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

Common language for all team members

Defines and outlines scope

Work Breakdown Structure

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Site

Project CProject BProject A

ExcavationDewateringSite Prep Restoration

Site Controls Setup

Build Access Road

Remove and Stockpile OB

Build DeconPad

Determine the Resources and Quantity of Resources Required

for Work Packages

Estimate the Cost of Work Packages

Estimate the Duration of Work Packages

Plan Resources and Estimate Cost and Duration

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

Assign Network Logic

How is this project doing?

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Planned Cost

Actual Cost

Current Time

TIME

COST

Management Reserve

Earned Value Curve

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Planned Value

BAC

Actual Cost

Schedule Variance

Cost Variance

EAC

Current Time Planned

Completion

Date

Estimated

Completion

DateTIME

COST

Earned Value

Earned value metric calculations provide holistic

understanding of project progress

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

Scheduling Best Practices

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General Process for Developing Work Breakdown

Structures

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WBS Best Practices

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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

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

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)

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

Project carrying costs can be high

Model Demonstration and Results

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Model Cost Results

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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 10/6/201110% Perc $4,564,216 138 days 9/20/201125% 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

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

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0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Ma

r-2011

Ap

r-2011

Ma

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Jun

-2011

Jul-2

011

Au

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Se

p-2

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Oct-

2011

Nov-2

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Dec-2

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Jan

-2012

Fe

b-2

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Ma

r-2012

Cu

mu

lati

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ost

$M

illio

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Maximum

80 Perc%

Mean

20 Perc%

Minimum

Trend Data for Probabilistic Earned Value Analysis

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0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

Cu

mu

lati

ve C

ost

Deterministic

Minimum

20 Perc%

Mean

80 Perc%

Maximum

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

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