LESSON 6-2: Risk Analysis: A Basic Example
This tutorial describes:
• How Risk analysis in Primavera Cloud brings the three sources of information together
• Your schedule shows a finish date of March 24 and a total cost of $135,000.
• The update provided by the risk manager
• The question. Will the house be ready on time and on budget?
• How to add risks along with probability and schedule and cost impact and run risk analysis
• How the Risk Removal Impact tab show the biggest cause that impacts the project schedule and cost.
• How to add response actions
• Post-Response risk analysis, with the risks mitigated
• The answer to the question: “Yes, the house be ready on time and on budget”.
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1. Bringing three sources of information together.
What's the most common question asked during the course of a project? Will the project finish on time and on budget? For an answer, the project manager turns to three key players - the planner, who focuses on the schedule, the estimator, who analyzes costs, and the risk manager, who assesses risk. Risk analysis in Primavera Cloud brings the three sources of information together in a single system. Here's how.
2. Your schedule shows a finish date of March 24 and a total cost of $135,000.
As a project manager, you are overseeing the building of a new home. Your client is expecting construction to be completed by the end of March with a total budget of $150,000. This simple schedule shows activities, durations, and dates. Resources, both material and labor, are included along with costs to complete each activity. Everything is looking good. The schedule shows a finish date of March 24 and a total cost of $135,000.
3. Update from the risk manager.
We are on target to complete one week early and $15,000 under budget. The risk manager provides an update to the schedule advising you that the roofing team gave an estimate of 10 days to complete, but it's really a range of 6 to 12 days. And two risks have been identified. The first is the foundation may subside. This has a low probability of occurring, but has a major impact if it does. The second is a medium probability of a brick supply shortage with delays of up to five days.
4. Question. Will the house be on time and on budget?
This information is shared with the client who asks that common question, will the house still be ready on time and on budget? Let's look at how to answer that question. For the Add Roof activity, add duration uncertainty to the schedule with a minimum of 6 days and a maximum of 12 days. Using a triangular distribution with a most likely still of 10 days, you know the duration is within range.
5. Add risks along with probability and schedule and cost impact and run risk analysis.
For the Lay Foundations activity, the foundations subside risk has been added, along with its probability and schedule impact. For the Erect Walls activity, the brick supply shortage risk has been added, along with its probability and schedule impact. You are now ready to run risk analysis to see how these issues impact the schedule. The Finish Date tab shows that based on the risks and uncertainty, the project has a 30% chance of finishing by March 24.
6. Risk Removal Impact tab show the biggest cause that impacts the project schedule and cost.
The chart shows the probability of the project finishing each week. There is a 90% chance that the project will complete by April 19. Based on the Risk Removal Impact tab, you know the subsiding foundation is contributing most to the delay. From a cost standpoint, there is a 30% chance of the project completing within the original estimate of $135,000. If we want a cost that we are 90% certain we can keep within, we are now talking $169,000 way above the client budget of $150,000.
7. Add response actions.
Again, it's the subsiding foundation that is driving costs. You have learned how the risk impacts the project schedule and cost, plus the biggest cause. Now, it's time to add response actions to mitigate the risks. For the foundation subsiding, an advanced site check can be done to identify and perform any remedial actions. This proposed action would cost $5,000 up front. However, the risk would no longer impact the schedule.
8. Post-Response risk analysis, with the risks mitigated.
For the bricks supply shortage, if you pay for premium guaranteed delivery costing $1,500 up front, this risk also will no longer impact the schedule. Looking at the risk analysis again, this time using Post-Response, with the risks mitigated, the project has a 67% chance of completing by March 24. You can be 90% certain to finish by March 27.
9. Answer to the question. Yes, the house be ready on time and on budge with confidence.
As for the cost, there is now just a 3% chance of the project coming in at $135,000 but that's because of the up front costs for mitigating the risks. You can be 90% certain the cost will be about $143,000. Now, back to the question. Will the project finish on time and on budget? You can respond, yes, with confidence. The project will be finished on time and on budget.
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