Mitigating cost and schedule risk with oracle primavera risk analysis - Oracle Primavera P6 Collaborate 14
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Eric Torkia presents on mitigating cost and schedule risk using Oracle Primavera Risk Analysis. Technology Partnerz Ltd. provides strategy and consulting support for predictive analytics adoption. Torkia discusses how traditional planning relies on averages which conceal risk, while risk analysis using ranges and simulation can identify critical factors and improve decisions. Simulation allows evaluating scenarios to set appropriate budgets and increase project success rates above the typical 50% challenged/failed level.
Mitigating cost and schedule risk with oracle primavera risk analysis - Oracle Primavera P6 Collaborate 14
- 1. REMINDER Check in on the COLLABORATE mobile app Mitigating Cost and Schedule Risk With Oracle Primavera Risk Analysis Prepared by: Eric Torkia, MASc Executive Partner – Analytics Practice Technology Partnerz Ltd. How to get results through better risk analysis Session ID#: 15461
- 2. Technology Partnerz Ltd. provides strategy, business analysis, solution selection and organizational change management support for the rapid adoption of predictive analytics tools and practices in a variety of business functions, sectors and industries. A little about us. We support our clients in improving decisions and business outcomes by providing: Success in analytics is more than just software and geeks…
- 3. Who we do it for…
- 4. Eric Torkia MASc is a senior management consultant/trainer and business analyst. He has collaborated with some of the worlds most recognized organizations to ensure the optimal design and delivery of enterprise systems, analytics as well as new forecasting and decision making processes. His skills and expertise include: Meet your presenter: Eric Torkia, MAsc • Project Risk Analysis, Project Feasibility and Financial Valuations for projects of over 1+ billion dollars. • Project Feasibility and Financial Valuations • Portfolio Optimization • Supply Chain Modeling and Risk Analysis • Organizational Change Management consulting, training and instructional design • Time Series Forecasting • Spreadsheet Modeling and VBA automation for simulation, forecasting and optimization • Certified Monte Carlo Simulation and Optimization Trainer & Consultant for Oracle Crystal Ball, Vose ModelRisk, Palisade @Risk, Frontline Solver SOME NOTABLE CLIENTS
- 5. How can risk analysis translate into ROI? ■ Averages vs. Range Estimates ■ Challenges and opportunities that risk analysis and simulation address? ■ How to make better decisions with risk information
- 7. AVERAGES Conceal Risk Range estimates address hidden risk
- 8. -20 345 47 335 Single-Point Estimate More information, Better decisions 142.5K Ranges show the full spectrum of possibilities 116.25K Range informationProbability of occurrence Or this one?Would you pick this project?
- 9. Only ranges can describe risk ■ Definition: Ranges define a range of potential occurrences and are necessary to obtain and communicate more meaningful and relevant information. ■ Where to start? Range Estimates… ▪ Can and should be derived from historical data ▪ Can be known statistical distributions ▪ Can be estimated by experts using 2 or 3 points (Min, Max and Most-Likely) Simulation models for better decisions require ranges as inputs
- 10. Analytics to improve project process performance ■ More than 50% of projects fail to meet EXPECTATIONS! ■ Why are so many projects challenged? ■ The cost of challenged projects ■ How can we break the 50% barrier? ■ Other barrier crashing opportunities
- 11. More than 50% of projects fail to meet EXPECTATIONS! Sources: http://www.ibm.com/developerworks/rational/library/feb06/marasco/index.html, http://www.softwaremag.com/L.cfm?Doc=newsletter/2004-01-15/Standish, http://www.softwaremag.com/archive/2001feb/CollaborativeMgt.html Simulation and Optimization WILL improve project success Recent Trends from the Chaos Report … “Initial cost and schedule estimates for major projects have invariably been over- optimistic. The risk that cost and schedule constraints will not be met and cannot be determined if cost and schedule estimates are given in terms of single points rather than distributions.” – Final Report of the USAF Academy Risk Analysis Study Team, August 1971 Trend State Successful: The project is completed on time and on budget, with all features and functions originally specified. Challenged: The project is completed and operational, but overbudget, late, and with fewer features and functions than initially specified. Failed: The project is canceled before completion, or never implemented.
- 12. Without taking into account risks and probabilities, it is impossible to : ■ Identify truly Critical Tasks and Resources ■ Set appropriate funding and budget levels from the beginning ■ Understand the factors that drive potential delivery dates to better manage risk Why are so many projects challenged? Plan for budget AND schedule risk using simulation
- 13. ■ Costly rework ■ Slow down project execution ■ Makes managing scope creep very difficult ■ Higher project failure rates ■ Diminished returns and benefits ■ Negative impact on the project team’s credibility the cost of challenged projects Addressing risk saves money and builds credibility The 50% Barrier for challenged projects
- 14. •Cost Assessments •Time-to-Replacement •Failure Modes Estimation •Resource Costs •Labor •Critical Path Analysis •Identify Resource Constraints Project Plan(s) •Consolidated Project Financials •NPV & IRR Analysis •Go/No Decisions •Success Criteria •Real Options Capital Projects •Execution Scenarios •Consolidated view of all projects •Resource Constrained Strategies •Optimization Portfolio Plan How can we break the 50% barrier? Operational Tactical Strategic BUILD PLANNING Operational Tactical Strategic EXECUTE PLANNING By leveraging risk analysis opportunities in both the planning & execution processes
- 15. Other barrier crashing opportunities ■ Project Feasibility ■ Project Selection ■ Bid Analysis ■ Project Scheduling ■ Resource Planning ■ Risk Identification ■ Project Financing ■ … ■ Critical Path Optimization ■ Benefits and Valuations ■ Asset Management & Replacement Strategies ■ R&D and Software Development Projects And many, many more…
- 16. Simulation – where the rubber hits the road ■ Introduction to the concepts of Monte-Carlo Simulation ■ How does simulation fit in with the business? ■ Enhancing the modeling process with simulation and optimization ■ Case and Example Simulation
- 17. ■ Quantify the effects of variation in your current “as-is” scenario ■ Predict a scenario’s probability of occurrence ■ Identify critical input variables that drive uncertainty or variability in your project plan ■ Determine an optimum and robust solution for your new “to- be” planning scenarios What do simulation analytics do? X 3 2 1
- 18. PRA’s Monte-Carlo approach Primavera Risk Analysis is a tool that facilitates simulation, sensitivity, statistical and analysis of complex project plans from most leading Project Management Systems. Distributions are applied to costs, time, and resources in Primavera Risk Analysis Inputs Outputs Data Finish Date of: Entire Plan Analysis Simulation: Latin Hypercube Iterations: 1000 Convergence at mean Mean Plan Finish Date: Converged in 200 iterations (variation < 1% over 100 iterations) Mean Total Plan Cost: Converged in 200 iterations (variation < 1% over 100 iterations) Statistics Minimum: 04 Oct 02 Maximum: 29 Oct 02 Mean: 15 Oct 02 Std Deviation: 4.037 Bar Width: day Highlighters 50% 16 Oct 02 Deterministic 3% 50% 16 Oct 02 80% 18 Oct 02 04 Oct 02 09 Oct 02 14 Oct 02 19 Oct 02 24 Oct 02 29 Oct 02 Distribution (start of interval) 0 20 40 60 80 100 120 140 Hits 0% 04 Oct 02 5% 09 Oct 02 10% 10 Oct 02 15% 11 Oct 02 20% 11 Oct 02 25% 14 Oct 02 30% 14 Oct 02 35% 14 Oct 02 40% 15 Oct 02 45% 15 Oct 02 50% 16 Oct 02 55% 16 Oct 02 60% 16 Oct 02 65% 17 Oct 02 70% 17 Oct 02 75% 17 Oct 02 80% 18 Oct 02 85% 18 Oct 02 90% 21 Oct 02 95% 22 Oct 02 100% 29 Oct 02 CumulativeFrequency House Construction Entire Plan : Finish Date 18% 22% 22% 22% 22% 26% 30% 33% 39% 49%0120 - ROOF FINISH 0100 - ROOF TRUSSES 0080 - BRICKWORK 0160 - Wall B 0220 - SNAGGING 0200 - DECORATE 0190 - FINISH PLUMBING 0090 - INSTALL WINDOWS 0150 - Wall A 0170 - Wall C House Construction Duration Sensitivity: Entire Plan - All tasks 05 Oct 02 07 Oct 02 09 Oct 02 11 Oct 02 13 Oct 02 15 Oct 02 17 Oct 02 19 Oct 02 21 Oct 02 23 Oct 02 25 Oct 02 27 Oct 02 29 Oct 02 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% CumulativeProbability Distribution Analyzer House Construction - Entire Plan - Finish Date A Project Plan
- 19. • Using traditional forecasting methods to establish a base case using historical data • What-If Analysis on Extreme Cases Time Series Forecasting Typical project planning process Traditional analysis stops here! AB CD E TOOLS ACTIVITIES PROCESS • Meetings with SMEs & Stakeholders • Define problem and Model objectives • Obtain planning logic • Establish sources for historical data • Based on the feedback and material provided in the previous step, develop a preliminary model What-If Analysis Define Project Objectives Develop a project plan Base case projections
- 20. Risk enabled planning process Define Assumptions & Forecasts Dynamic Monte-Carlo Simulation Planning Optimization Update Analysis and Build Reports TOOLS ACTIVITIES PROCESS Primavera Risk Analysis • Meetings with SMEs & Stakeholders to build a model • Document business assumptions/rules + build assumptions using historical data • ID model drivers and influences • Assess model behavior, risk and volatility • Model Validation • Refine project strategy using risk information • Assess additional time and budget scenarios • Generate/Update analysis • Build risk reports 18% 22% 22% 22% 22% 26% 30% 33% 39% 49%0120 - ROOF FINISH 0100 - ROOF TRUSSES 0080 - BRICKWORK 0160 - Wall B 0220 - SNAGGING 0200 - DECORATE 0190 - FINISH PLUMBING 0090 - INSTALL WINDOWS 0150 - Wall A 0170 - Wall C House Construction Duration Sensitivity: Entire Plan - All tasks Data Finish Date of: Entire Plan Analysis Simulation: Latin Hypercube Iterations: 1000 Convergence at mean Mean Plan Finish Date: Converged in 200 iterations (variation < 1% over 100 iterations) Mean Total Plan Cost: Converged in 200 iterations (variation < 1% over 100 iterations) Statistics Minimum: 04 Oct 02 Maximum: 29 Oct 02 Mean: 15 Oct 02 Std Deviation: 4.037 Bar Width: day Highlighters 50% 16 Oct 02 Deterministic 3% 50% 16 Oct 02 80% 18 Oct 02 04 Oct 02 09 Oct 02 14 Oct 02 19 Oct 02 24 Oct 02 29 Oct 02 Distribution (start of interval) 0 20 40 60 80 100 120 140 Hits 0% 04 Oct 02 5% 09 Oct 02 10% 10 Oct 02 15% 11 Oct 02 20% 11 Oct 02 25% 14 Oct 02 30% 14 Oct 02 35% 14 Oct 02 40% 15 Oct 02 45% 15 Oct 02 50% 16 Oct 02 55% 16 Oct 02 60% 16 Oct 02 65% 17 Oct 02 70% 17 Oct 02 75% 17 Oct 02 80% 18 Oct 02 85% 18 Oct 02 90% 21 Oct 02 95% 22 Oct 02 100% 29 Oct 02 CumulativeFrequency House Construction Entire Plan : Finish Date Risk Strategy
- 21. Adding variance in your project Estimation Project Plan(s) Capital Budget Portfolio Plan Mgmt. Questions • Does my scheduling plan work? • How long will my project take? • What are the biggest drivers I should be planning for? • What is real critical tasks? Recommended Best Practice in the PMBOK
- 22. Estimating cost / budgets with risk Management Questions • How much should I budget for contingency? • Which work package is the riskiest? • Will this impact my planning? Estimation Project Plan(s) Capital Budget Portfolio Plan
- 23. Probabilistic cash flows Mgmt. Questions • What is the impact of my project budget on IRR? • How likely is it that I will beat 15% IRR Hurdle Rate • What are the biggest drivers I should be planning for? • How will NPV look over time? Estimation Project Plan(s) Capital Budget Portfolio Plan + &
- 24. Project Portfolio Modeling Mgmt. Questions • What Project Portfolio will give me the highest NPV • What is the riskiest / high returns portfolio? • What is the safest portfolio? Estimation Project Plan(s) Capital Budget Portfolio Plan Project Portfolio Management + &
- 25. Contact US 550 Sherbrooke St. W., West Tower, Suite 1650 Montreal, Qc., Canada H3A 1B9 888-879-8440 / 514-278-2221 (Sales & Customer Support) www.technologypartnerz.com
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