qra for overall project risk - dr david hillson

© Copyright 2015-16, The Risk Doctor Partnership, Slide 1

Assessing overall project risk with quantitative risk analysis

Presented by

Dr David Hillson

HonFAPM, PMI Fellow, FIRM, FCMI

The Risk Doctor The Risk Doctor Partnership [email protected] www.risk-doctor.com

11 February 2016, London, UK


Two key questions

1. How risky is

your project?

2. How do you

know?


How to answer these questions?

Two levels of question & answer:

1. Project Manager:

Q: What are the risks in my project?

A: Individual risks (see Risk Register & risk reports)

2. Project sponsor/project owner/customer:

Q: What is the riskiness of this project?

A: Overall project risk (????)


What is “individual risk”?

APM PRAM Guide (2004), BoK6 (2012)

an uncertain event or set of circumstances that, should it occur, will have an effect on achievement of one or more of the project’s objectives.

PMI Practice Standard for Project Risk Management (2009), PMBoK® Guide (2013)

an uncertain event or condition that, if it occurs, has a positive or negative effect on a project’s objectives.


What is “overall project risk”?

APM PRAM Guide (2004), BoK6 (2012)

Overall risk is the exposure of stakeholders to the consequences of variation in outcome, arising from an accumulation of individual risks together with other sources of uncertainty.

PMI Practice Standard for Project Risk Management (2009), PMBoK® Guide (2013)

Overall project risk represents the effect of uncertainty on the project as a whole. It is more than the sum of individual risks on a project.


Is this in scope for project managers?

Project Manager is responsible for identifying, assessing and managing specific uncertainties within the project (individual risks)

Project Manager is accountable to Project Sponsor and stakeholders for overall risk exposure of the project (overall project risk)

Yes, but how?


Managing overall project risk

Identifying sources of overall project risk

Quantifying overall project risk

Responding to overall project risk

Reporting & monitoring overall project risk


“Exposure of stakeholders to variation in outcome”

“Effect of uncertainty on the project as a whole”

Key questions with quantitative answers:

How likely is this project to succeed (or fail)?

What is potential range of variation in outcome?

Standard Monte Carlo simulation answers these




Cum

ula

tive p

robabili

ty (

%)

TARGET

£2.2M

23% CHANCE OF MEETING TARGET

EXPECTED

VALUE

£2.35M

85% CHANCE OF COSTING £2.45M

RANGE OF UNCERTAINTY (5:95) = £0.5M

0

10

20

30

40

50

60

70

80

90

100

Cum

ula

tive p

robability

(%)

0

10

20

30

40

50

60

70

80

90

100

Predicted total project cost

£2.0M £2.2M £2.4M £2.6M £2.1M £2.7M £2.8M £2.5M £2.3M

An example Monte Carlo output (cost)


“How risky is this project?”

Quantitative answers:

How likely is this project to succeed?

Probability of meeting £2.2M target = 23%

Expected value = £2.35M (+7%)

What is potential range of variation in outcome?

Total potential range = £0.5M (= 22% of project value)

Realistic best case (5th percentile) = £2.1M (– 4%)

Realistic worst case (95th percentile) = £2.6M (+18%)

Quantifying overall project risk An example Monte Carlo output (cost)


Time

Co

st

PLANNED

PROJECT

START

ZERO

MAXIMUM

TOTAL

COST

LATEST

PROJECT

END

WORST CASE:

MAXIMUM COST &

LATEST END

MINIMUM

TOTAL

COST

EARLIEST

PROJECT

END

BEST CASE:

MINIMUM COST &

EARLIEST END

INDIVIDUAL

COST-TIME

RESULT

EXPECTED

PROJECT

END

EXPECTED

TOTAL

COST

EXPECTED CASE MEAN COST & TIME

Quantifying overall project risk Another example Monte Carlo output (cost/time)


Reporting overall project risk

Update at key milestones, tell stakeholders:

Current level of overall project risk

Major causes of overall project risk

Key responses underway or planned

Trend in overall project risk since project started

Predicted level at next reporting point

Monitor changes and trends

No common practice formats

Suggested dashboard components


Overall Project Risk Barometer

PR

OB

AB

ILIT

Y O

F P

RO

JE

CT

SU

CC

ES

S

0%

50%

100%

80%

PROJECT START

PROJECT END

REVIEW 1 R2 R3 R4 MILESTONE 1

R5 R6 MS2 R7 R8 MS3 R9 R10 R11

TIME NOW

PR

OB

AB

ILIT

Y O

F P

RO

JE

CT

SU

CC

ES

S

0%

50%

100%

80% TREND LINE


Overall Project Risk Barometer + variability

PR

OB

AB

ILIT

Y O

F P

RO

JE

CT

SU

CC

ES

S

0%

50%

100%

80%


R5 R6 MS2 R7 R8 MS3 R9 R10 R11

TIME NOW

TREND LINE

PR

OB

AB

ILIT

Y O

F P

RO

JE

CT

SU

CC

ES

S

0%

50%

100%

80%

PROJECT START

PROJECT END


R5 R6 MS2 R7 R8 MS3 R9 R10 R11

VA

RIA

BIL

ITY

VA

RIA

BIL

ITY

TARGET

UNDER

TARGET

OVER

TARGET

TARGET

UNDER

TARGET

OVER

TARGET

TREND LINE

MIN

EXP

MAX


Cost/time variability from “eyeball/football plot”

Time

Co

st

TARGET COST

TARGET

DATE

REVIEW 1

REVIEW 3

REVIEW 2


“Eyeball/football” orientation indicates risk type

Cost & time risk are positively correlated and equally balanced

Time

Co

st

EARLY LATE

UN

DE

RS

PE

ND

O

VE

RS

PE

ND


Cost & time risk are positively correlated,

equally balanced

Cost & time risk are negatively

correlated, equally balanced

Major risk is to time, cost not

affected significantly

Major risk is to cost, time not

affected significantly

Time

Co

st

EARLY LATE

UN

DE

RS

PE

ND

O

VE

RS

PE

ND

Time

Co

st

EARLY LATE

UN

DE

RS

PE

ND

O

VE

RS

PE

ND

Time

Co

st

EARLY LATE

UN

DE

RS

PE

ND

O

VE

RS

PE

ND

Time

Co

st

EARLY LATE

UN

DE

RS

PE

ND

O

VE

RS

PE

ND

“Eyeball/football” orientation indicates risk type


Final thoughts


Next steps for practitioners and the profession

Risk matters, including both individual risks and overall project risk

Both need to be managed proactively

Best-practice needs to evolve to cover both

PM standards must provide guidance for both

We must deal equally with the risks in the project and the riskiness of the project


Final questions

How risky is your project?!

How do you know??!!

Do you include overall project risk

in your thinking & practice?

If not, why not?

Would it be possible?

What changes are required?


Thank you Any questions?


For further information

Dr David Hillson The Risk Doctor Partnership

+44(0)7717.665222

[email protected]

www.risk-doctor.com

YouTube.com/RiskDoctorVideo

11 February 2016, London, UK

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