Project Planning and Control

Lecture: 7
MS-PM Spring 2015
Riphah International University
Islamabad. Pakistan

Risk
It is an uncertain event or condition that, if it

occurs, has a positive or negative effect on one

or more project objectives such as scope,
schedule, cost, and quality (PMBok Guide 5th
Ed)
Project risk has its origins in the uncertainty
present in all projects.
A negative project risk that has occurred is
considered an issue.

Known and Unknowns

Known risks are those that have been identified

and analyzed, making it possible to plan

responses for those risks.
Known risks that cannot be managed
proactively, should be assigned a contingency
reserve.
Unknown risks cannot be managed proactively
and may be assigned a management reserve.

Individual and Overall Project

Risks
Individual project risks are different from overall

project risk
Overall project risk represents the effect of
uncertainty on the project as a whole.
It is more than the sum of the individual risks within a
project, since it includes all sources of project
uncertainty.
Positive and negative risks are commonly referred to
as opportunities and threats.

Project Risk Management

Overview

Qualitative Risk Analysis

Qualitative Risk Analysis is the process of

prioritizing risks for further analysis or action by

assessing and combining their probability of
occurrence and impact (PMBok Guide 5th Ed).
It enables project managers to reduce the level

of uncertainty and to focus on high-priority risks.

Qualitative Risk Analysis Tools

and Techniques

Quantitative Risk Analysis

Quantitative Risk Analysis is the process of

numerically analyzing the effect of identified

risks on overall project objectives.
Quantitative Risk Analysis is performed on risks
that have been prioritized by the Qualitative Risk
Analysis process
It produces quantitative risk information to
support decision making in order to reduce
project uncertainty.

Quantitative Risk Analysis Tools

and Techniques

Quantitative Risk Analysis

Modeling Techniques
Sensitivity analysis

It examines the extent to which the uncertainty of

each project element affects the objective being
studied when all other uncertain elements are held at
their baseline values.
It helps to determine which risks have the most
potential impact on the project.
It helps to understand how the variations in projects
objectives correlate with variations in different
uncertainties.

Sensitivity Analysis

Expected Monetary Value

Analysis
Calculates the average outcome when the future

includes scenarios that may or may not happen

(i.e., analysis under uncertainty).
Opportunities are generally expressed as
positive values, while those of threats are
expressed as negative values
EMV for a project is calculated by multiplying the
value of each possible outcome by its probability
of occurrence and adding the products together

EMV Analysis

Modeling and Simulation

A project simulation uses a model that translates

the specified detailed uncertainties of the project

into their potential impact on project objectives.
In a simulation, the project model is computed
many times (iterated), with the input values (e.g.,
cost estimates or activity durations) chosen at
random for each iteration from the probability
distributions of these variables.

Modeling and Simulation

A histogram (e.g., total cost or completion date)

is calculated from the iterations.

For a cost risk analysis, a simulation uses cost
estimates.
For a schedule risk analysis, the schedule network
diagram and duration estimates are used.

Modeling and Simulation

Monte Carlo Simulation

A process which generates hundreds or

thousands of probable performance outcomes

based on probability distributions for cost and
schedule on individual tasks (PMBoK 5th Ed).
The outcomes are then used to generate a
probability distribution for the project as a whole
Simulations are typically performed using the

Monte Carlo technique.

Monte Carlo Simulations

Monte Carlo Estimates

Probabilistic Statistical
Analysis

Monte Carlo Estimates

Interpretations
There are three types of probability curves

Normal or Bell Curve

Values in the middle near the mean are most likely to
occur

Lognormal
Values are positively skewed towards Optimistic estimates
.

Uniform
All values have an equal chance of occurring, and the
user simply defines the minimum and maximum.

Monte Carlo Normal/Bell Curve

Probability

High probability on these values

Optimistic

Most Likely

Bell Curve

Pessimistic

Lognormal Curve

Probability

High probability on these values

Optimistic

Most Likely

Pessimistic

Critical Chain Management

The resource-constrained Critical Path is known

as the Critical Chain.

The critical chain method adds duration buffers

that are non-work schedule activities to manage

uncertainty.

Critical Chain Method

Critical Chain Buffers

There are three types of Buffers

CCPM Vs CPM

CCPM Schedules
Identify Critical Chain

CCPM Vs CPM
CPM

CCPM

Identifies only critical work sequence without

Resource Constraints

Identifies the critical work sequence, especially

the work of constraint resources

During execution, the critical path changes,

making it difficult to manage priorities

During execution, identifies the risk associated

with each task and its impact on the project
completion

Does not exploit constraint/scarce resources

Exploits Constraint /scarce resources

Does not interpret the linkage of one risk with the

other activities of the project

Provides a clear linkage of one risk with all the

possible related activities

Drawbacks of CCPM

Assumes that all estimates are padded or have safety

margins assigned implicitly
If the estimators know that their estimates are going to
be shortened, they tend to add more
padding/cushion/safety margins to their estimates
Assumes the spread of a risk on the activity uniformly
Does not account for the restart of an activity or the
additional activities introduced for risk mitigation in the
project in case a risk is triggered.
Does not accommodate the linkage of one risk to
another risk in the project.

Event Chain Methodology

Focuses on events and event chains which can

modify the project schedules, objectives, scope

and costs
Acknowledges the fact that a risk may have
different probability of occurrence over the
timeline of an activity and can have different
impacts at different points in time. This also helps
to mitigate the impacts of motivational and
cognitive biases.

Event Chain Methodology

Principles of Event Chain

1.

Moment of risk and state of activity

2.

Event Chains

3.

Defining the logical relationship between risks through

State Tables

Monte Carlo Simulations

4.

Ground Vs Excited States

Quantify the probabilities and impacts of Risks

(individual + Cumulative)

Critical Event Chains

Identifying the CRITICAL CHAINS of Events that can

impact a Project significantly

Principles of Event Chain

5.

Performance Tracking with Event Chains

6.

Probability and time of the events can be recalculated

based on actual data

Event Chain Diagrams

Simplifying analysis through visual diagramming methods

like GANTT Charts etc.

Advantages of ECM
Acknowledges Repetition of an activity on a project

and a relationship between risks and events

Acknowledges different impacts of same risk
happening at different point in time on an activity
Incorporates the Mitigation Plans in the
original/baseline schedule
Defines estimates based on Resource Scarcity,
taking in account events like sick leaves, temporary
leaves and vacations etc.