Risk Event Modeling and Event Chains
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The document discusses the challenges of project management, focusing on risk management as a key factor for project success. It highlights techniques like Monte Carlo simulations for analyzing risks and uncertainties that affect project duration and costs, along with methods for eliciting probability judgments from experts. The document outlines workflows for risk event modeling and emphasizes the importance of identifying critical risks to improve project outcomes.
Risk Event Modeling and Event Chains
- 1. Risk Event Modeling Intaver Institute Inc. 303, 6707, Elbow Drive S.W, Calgary, AB, Canada Tel: +1 (403) 692-2252 Fax: +1 (403) 459-4533 www.intaver.com 4280 East Tamiami Trail, 302-M, Naples Florida, 34112, USA Tel: +1(510) 984 3527
- 2. The Project Management Problem 2009 Intaver Institute Many projects are unsuccessful! • Budget • Schedule • Quality • Other measures Projects consistently fail to meet:
- 3. 2009 Intaver Institute 3 Key Project Management Issues • How to estimate project duration or cost? • What are the most critical risks and how to handle them? • How to measure project performance? • How to make an informed decision about the future course of the project? The Project Management Problem
- 4. 1/31/2018 2009 Intaver Institute 4 Reasons • Human psychological limits • Inadequate training • Poor processes • other The Project Management Problem
- 5. 2009 Intaver Institute Risk management key to project success • Risks are events that can occur during a project that changes to course of a project • Risk is key source of project uncertainty and major root cause of project failure • Limited ability to forecast and manage project uncertainty due to risk The Project Management Problem
- 6. 2009 Intaver Institute Chains of unfortunate events • Risks can form event chains • A risk occurs and causes another risk to occur, which causes yet another • Unexpected result of a series of events derail projects • Statistical sampling or Monte Carlo simulations the best solution for modeling the effect of related and unrelated project risks The Project Management Problem
- 7. Benefits 2009 Intaver Institute Understand impact of risk on projects • Understand project risk and uncertainty in Cost and Duration • Identify critical risks and activities • Model risk handling efforts • Improved contingency and buffer plans • Monitoring with risks and uncertainties provides strong, early signals of impending issues
- 8. Uses common PM artifacts • WBS • Resources • Costs • Risk Register or Risk Lists developed for qualitative risk management Risk Event Modeling Workflow 2009 Intaver Institute
- 9. Risk Definition • Risks – Risks are “events” that have a probability of occurring during a project – Risks are identified and assigned to tasks or resources – Define impact of risks by assigning: • Chance of occurrence • Outcome (e.g. delay, increase in cost) • Result (percentage or fixed value of outcome) 2009 Intaver Institute
- 10. What is Monte Carlo Monte Carlo simulation is a mathematical method used in risk analysis. Monte Carlo simulations are used to approximate the distribution of potential results based on probabilistic inputs.
- 11. Monte Carlo Simulations Input Parameters Output Parameters Calculation Engine Critical Path Scheduling Engine ( ) Task duration cost, finish time, etc. cost, finish time, etc. Project duration
- 12. Monte Carlo Schedule Analysis 4 5 6321 7 7 82 3 654 1 4 5 632 7 8 9 10 11 12 13 14 15 16 1 2 3 4 5 6 7 Task 1 Task 2 Task 3
- 13. Two Approaches to Estimating Probabilities • The relative frequency approach, where probability equals the number of occurrences of specific outcome (or event) divided by the total number of possible outcomes. • The subjective approach represents an expert’s degree of belief that a particular outcome will occur.
- 14. Two Approaches for Defining Uncertainties • Distribution-based approach • Event-based approach
- 15. Which Distribution Should Be Used? Normal Triangual Uniform Also useful: • Lognornal • Beta
- 17. Before Eliciting Judgment You Need to Have: • A clearly defined problem • An identified list of risks, or a risk breakdown structure, for the project • A project schedule • A clearly defined set of questions you will ask experts In addition, your team of experts should be aware of any personal interest that expert may have regarding particular issues. It helps to mitigate motivational biases.
- 18. Psychological Factors • Availability heuristic: people judge the probability of the occurrence of events by how easily these events are brought to mind. • Anchoring heuristic: refers to the human tendency to remain close to the initial estimate. • Wishful thinking: when we overestimate the probabilities of opportunities and underestimate the probabilities of risks.
- 19. Overestimating the Probability of Compound Events If the probability of a defect in a component is 20% and the device uses three redundant components, the probability of the defective device will be (0.2 * 0.2 * 0.2) = 0.008%. People tend to think this number is much higher.
- 20. Ignoring Base-Rate Frequencies • Historically, the probability that a particular component will be defective is 1%. • The component is tested before installation. • The test showed that the component is defective. • The test usually successfully identifies defective components 80% of the time. • What is the probability that a component is defective? The correct answer is close to 4%, however, most people would think that answer is a little bit lower than 80%.
- 21. Eliciting Probabilities of Events • Pose a direct question: “What is the probability that the project will be canceled due to budgetary problems?” • Ask the experts two opposing questions: (1) “What is the probability that the project will be canceled?” and (2) “What is the probability the project will be completed?” The sum of these two assessments should be 100%. • Break compound events into simple events and review them separately.
- 22. Probability Wheel 25% No delay of activity 35% 3 day delay of activity 40% 5 day delay of activity
- 23. Task Duration 4 8 12 16 20 100% 80% 60% 40% 20% Frequency Probability 2 3 4 5 6 (days) Question: What is the chance that duration is less than 3 days? Eliciting Judgment: Probability Method
- 24. Eliciting Judgment: Method of Relative Heights Task Duration 2 4 6 8 10 2 3 4 5 6 50% 40% 30% 20% 10%Frequency Probability (days) Question: How many times the duration will be between 2 and 3 days?
- 25. How Many Trials Are Required? Huge number of trials (> 1000) usually does not increase accuracy of analysis • Incorporate rare events • Use convergence monitoring
- 26. What Is The Chance That a Project Will Be on Time and Budget?
- 27. Analysis of Monte Carlo Results • Sensitivity and Correlations • Critical Indices • Crucial tasks • Critical Risks • Probabilistic Calendars • Deadlines • Conditional Branching • Probabilistic Branching • Chance of Task Existence
- 28. Analyze Results 1/31/2018 2009 Intaver Institute 28 • Risk Scores • Overview with and without risks • Detailed results of analysis View results • Sensitivity • Crucial Tasks • Success Rate • Risk Chart Identify critical risks and tasks • Risk ScoresRisk Matrix
- 29. Project Gantt 1/31/2018 2009 Intaver Institute 29 When you have project schedule and risk breakdown structure ready click here to perform Monte Carlo simulations
- 30. Risk Register Pre-mitigation Probability, Impact, And Score 1/31/2018 2009 Intaver Institute 30
- 31. Result Gantt Chart 1/31/2018 2009 Intaver Institute 31 White bars represent original project schedule (no risks) Blue bars represent project schedule with risks Because of risks, project duration significantly increased
- 32. Results of Risk Analysis 1/31/2018 2009 Intaver Institute 32 Project Summary: project duration, cost, and finish time with and without risks Results of analysis for project cost, finish time, and duration Double click on any chart to view detailed information
- 33. Detailed Results of Analysis Move the slider to determine the chance that project will be within budget Get detailed statistical data Data can be exported as an image or text Detailed results can be shown for each tasks or whole project for cost, duration, start time, finish time, and income.
- 34. Sensitivity Tornado chart shows risks or other parameters that have the most affect on the project schedule Critical risks need to be mitigated first
- 35. Crucial Tasks Crucial tasks have the most affect on the project schedule Crucial tasks for project cost and duration can be different
- 36. Success Rate A task can be canceled if it reaches a task or a project deadline or if it is affected by risk with a “Cancel task” outcome. Success rate is calculated based on number of times the task is not canceled
- 37. Risk Chart Risk chart show risks, associated with task versus duration or cost This task has cost and high risk These tasks have balanced risk versus Cost ratio.
- 38. Risk Matrix Risk matrix shows probability/impact on 5x5 matrix Double-click on a risk to view risk assignments Risk Probability, Impact and Score for the current schedule
- 39. Risk Planning Modeling risk mitigation efforts •Risk handling strategies •Transfer •Mitigate •Eliminate •Ignore •Risk mitigation efforts represent their own costs etc. which must be accounted for •Create multiple baselines that model pre and post mitigation risk handling efforts •View results of risk handling efforts •Select project alternative based on criteria (cost, duration, start and finish time, success rate)
- 40. Additional Resources 40 Project Think: Why Good Managers Make Poor Project Choices Project Decisions: The Art and Science Introduction to Project Risk Management and Decision Project Risk Analysis Made Ridiculously Simple
Editor's Notes
- #9: Why is this easy
- #31: Risk register is central point of entry into risk analysis and management system Shows calculated project risk scores – ranks and identifies critical project risks. Add two screen shots. Risk Register Risk Assignment Add slide with Risk Mitigation Waterfall diagram with descriptive names
- #32: Change to put calculated results in the Result Gantt chart
- #34: Detailed results show certainty levels or the chance that a project parameter will be a certain value. Allows you to see the values e.g. managing at 75% certainty as well as setting buffers or contingencies.
- #37: Calculates the success rates of tasks or project based upon deadlines or constraints