2011-CD06

Integrated Cost-Schedule Risk Analysis using Risk Drivers and Prioritizing Risks

e-Track

CD06_Integrated cost-schedule risk analysis_Hulett

Abstract:

Many cost estimates assume that the project schedule is engraved in stone. A risk analysis of the cost estimate is conducted using only cost risk drivers. In this analysis the impact on cost risk of uncertainty in schedule is often ignored or incompletely considered.

This presentation discusses how cost and schedule risk analysis is integrated so that cost risk is affected by both traditional cost risk elements (e.g., uncertain material costs or labor rates) and schedule risk elements (e.g., fabrication or testing that may take longer and thus cost more).

The elements of the presentation are:
• Use of the Risk Driver approach to quantitative project cost and schedule risk analysis. The Risk Drivers approach starts with individual risks from the Risk Register and characterizes them by their probability and impact range. Risk drivers are then assigned to the activities and costs as appropriate. The analysis focuses on the risks themselves, exactly where it benefits management most directly.
• Integrate schedule and cost risk by using a resource-loaded schedule and conducting Monte Carlo simulation of both cost and schedule simultaneously. This analysis is the basis of the Joint Confidence Limit (JCL) analysis included in NASA methodology for setting the budgets and schedules to provide a target probability of meeting both cost and schedule.
• Because the individual risks are the drivers of overall schedule and cost risk, we can prioritize the effect of specific risks on the need for contingency reserves of both time and of money. Some of the main risks to cost are the schedule risks that drive the duration of labor-type activities.
• Use of the prioritized risk list to develop and estimate the benefits of alternative risk mitigation strategies.

Author:

David Hulett
Hulett & Associates, LLC
David Hulett provides consulting and training services in project risk management and scheduling through his firm Hulett & Associates, LLC of Los Angeles. His clients have included companies in aerospace and defense, oil and gas, construction, pharmaceutical, transportation, communications, IT and large science. He has consulted for several US Government agencies including Defense and Energy department agencies, NASA, GAO and GSA. Dr. Hulett focuses on qualitative and quantitative cost and schedule risk analysis and on project scheduling. Clients of Hulett & Associates, LLC are in the US, the Far East, South America and the Middle-East.

Dr. Hulett was project manager for the revision of the Risk Management chapter of the PMBOK® Guide that was published in 2000 and again for the 3rd Edition. Dr. Hulett was recently on the Core Committee for the PMI Practice Standard for Scheduling and was the Deputy Project Manager of the PMI Practice Standard for Risk Management. He has served as Director of Technology Development of the PMI RiskSIG and as the Director for Schedule Risk of the College of Scheduling.

Dr. Hulett has presented papers on cost and schedule risk analysis to many professional societies including PMI, INCOSE and AACE and at user groups for Primavera, C/S Solutions, Palisade and Crystal Ball. He has published a book entitled Practical Schedule Risk Analysis (2009, Gower), and his book Integrated Cost – Schedule Risk Analysis is due for a May 2011 publication.

Dr. Hulett has held strategic planning positions at TOSCO, an oil company, and at TRW in aerospace and defense. In the Federal government, Dr. Hulett managed offices in the Federal Energy Agency, Department of Energy and the Office of Management and Budget. He was an economist at the Federal Reserve Board of Governors. He was an Instructor in the Economics Department at Harvard University. His Ph.D. in Economics is from Stanford and B.A. in the Special Program for Public and International Affairs (Woodrow Wilson School) is from Princeton.