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To be credible, the Integrated Master Schedule (IMS) must be risk tolerant. Here's how to build that IMS.
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BUILDING A RISK
TOLERANT IMS
Using Earned Value to manage the risk of a project in terms “risk adjusted physical performance”
1
Our Real Motivation is to Increase the Probability of Program Success PoPS
2
Risk Management is about Probability 3
Statistics v. Probability
In building our risk tolerant
IMS, we’re interested in the
probability of a successful
outcome “What is the probability of on
or before planned completion
date?”
The underlying statistics of
the cost, schedule and
technical performance
influence this probability.
The statistics of the task durations, their arrangement in a
network of tasks and correlation define how this probability
based estimated developed.
4
Our DoD Risk Management Process
Anticipate what can go wrong
Communicate
Identify
Plan
Track
Control
Decide what is important
Plan to take action
Correct any deviations
Track all actions
Analyze
5
Identify Risks
Risk identification answers the question “What can
go wrong?” by:
Looking at current and proposed staffing, process,
technical, supplier, operational, resources, and any
other dependencies,
Monitoring technical results especially failures,
Reviewing potential shortfalls against expectations,
Analyzing negative trends.
6
Communicate
Identify
Plan
Track
Control
Analyze
Analyze Risks
Risk analysis answers the question “How big is the
risk?” by:
Considering the likelihood of the root cause occurrence;
Identifying the possible consequences in terms of
performance, schedule, and cost; and
Identifying the risk level using the “Risk Reporting
Matrix”
7
Communicate
Identify
Plan
Track
Control
Analyze
Planning the Risk Response
Risk mitigation planning answers the question “What is the program approach for addressing this potential unfavorable consequence?” One or more of these mitigation options may apply:
Avoiding risk by eliminating the root cause and/or the consequence,
Controlling the cause or consequence,
Transferring the risk, and/or
Assuming the level of risk and continuing on the current program plan.
8
Communicate
Identify
Plan
Track
Control
Analyze
Implementing the Risk Pln
Risk mitigation (plan) execution ensures successful risk
mitigation occurs. It answers the question “How can the
planned risk mitigation be implemented?” By:
Determining what planning, budget, and requirements and
contractual changes are needed,
Providing a coordination vehicle for management and other
stakeholders,
Directing the teams to execute the defined and approved
risk mitigation plans,
Outlining the risk reporting requirements for on-going
monitoring, and
Documenting the change history.
9
Communicate
Identify
Plan
Track
Control
Analyze
Tracking the Risk
Risk tracking ensures successful risk mitigation. It
answers the question “How are things going?” by:
Communicating risks to all affected stakeholders,
Monitoring risk mitigation plans,
Reviewing regular status updates,
Displaying risk management dynamics by tracking risk
status within the Risk Reporting Matrix, and
Alerting management as to when risk mitigation plans
should be implemented or adjusted.
10
Communicate
Identify
Plan
Track
Control
Analyze
Risk Control Processes 11
The control function takes the tracking status reports
for the watched and mitigated program risk and
decides what to do with them based on the
reported data. The general process of controlling
risks includes:
Analyzing the status reports
Deciding how to proceed
Executing the decisions
Communicate
Identify
Plan
Track
Control
Analyze
EV Data
EV Data EV Data
Putting this framework together with EV
Program Manager
Functional Managers
Work Package Managers
Individuals/ Team Members
Identify
Analyze Review Prioritize Evaluate Classify
Track
Plan • Approve plans • Recommend
actions • Develop plans
risks
Top N risks
Top N risks decision
s assign responsibility
trends
risk status
Control • Integrate • Reprioritize • Authorize • Functional area
resources
1 3
2 assign non-top N
12
Connecting EV and Risk Management 13
EV data is assigned to Tasks and Work Packages,
managed by CAMs and WP managers.
They can review, prioritize, evaluate, classify the risks
they know well at the lowest level in the IMS.
In the planning stages of the IMS (or BoE), risks are
revealed during the normal course of work
Identifying and analyzing these risks, again falls on the
CAM and WP Managers.
During the Tracking activities, risks are including the
in standard EVM performance assessment
ETC, EAC, BCWR, and other going forward estimiates
1
2
3
Step by Step Data and Process 14
Identification Activities Overview
EV Data
Statement of risk
Context
List of risks Group/team uncertainties
Individual uncertainties
Project data
PRINCIPLES 1. Non-judgmental 2. Individual voice 3. Multiple perspectives
15
Analysis Activities Overview
Master list of risks
Top N
Statement of risk
Impact Probability
Timeframe Classification Rank
List of risks
Statement of risk
Context
PRINCIPLES 1. Most important 2. Vital few 3. Leverage relationships
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Risk Risk
Risk
Risk
Risk Risk
Class 3
Risk
Classification
Class 1 Class 2
Planning Activities Overview
Risk Risk
Risk
Risk
Risk Risk
Class 3
Risk
Classification
Class 1 Class 2
Action plans
Statement of risk Context Impact Probability Timeframe Classification Rank Plan Approach
Project goals and constraints
Resources
Master list of risks
Top N
Statement of risk Context Impact Probability Timeframe Classification Rank
PRINCIPLES 1. Action-oriented 2. Ownership 3. Accountability
17
Tracking Activities Overview
PRINCIPLES 1. Risk-driven measures 2. Know your audience 3. Know what success looks like
Action plans
Statement of risk Context Impact Probability Timeframe Classification Rank Plan Approach
Statement of risk Context Impact Probability Timeframe Classification Rank Plan Approach Status Project
data
Risk & mitigation plan measure
Status reports
• risks • mitigation
plans
Resources
18
Control Activities Overview
Status reports
• risks • mitigation plans
Project
data
Decisions
• replan • close • invoke
contingency • continue
tracking
Statement of risk
Context Impact Probability Timeframe Classification Rank Plan Approach Status Control Decision
Statement of risk
Context Impact Probability Timeframe Classification Rank Plan Approach Status
PRINCIPLES 1. Follow the plan 2. Conditions change
19
Management Reserve
Calculate total project management reserve required
based on
statistical modeling
past experience
0
500
1000
1500
2000
2500
3000
3500
4000
Jan Mar May Jul Sep Nov Jan Mar May
BCWS
Management Reserve
Schedule Reserve
BAC
Total Funds
20
Management Reserve Strategy
0
200
400
600
800
1000
1200
Jan Mar May Jul Sep Nov Jan Mar May
Estimate based on
risk evaluation
baseline
Estimate based on
straight-line
21
Risk Metrics connected the IMS
WATCH DOMAIN
RIS
K*
Transition Thresholds
PROBLEM DOMAIN
Feb 96 Mar 96 Apr 96
Time
Pessimistic
Expected
Optimistic
MITIGATION DOMAIN
Accept
12
10
8
6
4
2
May 96
Event #1 2 3 4 6 5
22
Risk–Earned Value
REWS: Risk Exposure Work Scheduled
Ris
k Ex
po
sure
$$
$
0
1000
2000
3000
4000
5000
6000
Feb Mar Apr May Jun
23
Risk Retirement Plan in the IMS
Time Now
Estimate To Completion
Risk Exposure Variance Schedule Risk Variance
Plan To Completion
Actual to-date
0
5000
10000
15000
20000
25000
Jan Mar May Jul Sep Nov Jan Mar May
24
Schedule and Funding Reserve
0
500
1000
1500
2000
2500
3000
3500
4000
Jan Mar May Jul Sep Nov Jan Mar May
BCWS
Management Reserve
Schedule Reserve
BAC
Total Funds
TIME
4500
Negotiated 25
Schedule and Funding Reserve
0
500
1000
1500
2000
2500
3000
3500
4000
Jan Mar May Jul Sep Nov Jan Mar May
BCWS
Management Reserve
Schedule Reserve
BAC
Total Funds
TIME
4500
EAC
negotiated
ACWP BCWP
Now
Schedule slip
Cost overrun
26
Management Reserve Ratio (MMR)
MRR: Management Reserve Ratio TFA: Total Funds Available
Ratio of total funds available against total estimated funds expended at completion
0.8
0.9
1
1.1
1.2
1.3
1.4
MRR
CPI
27
MR TFA BACTFA TFAMRR CPIEAC BAC
Risk Data Analysis Relationships
Term Formula
Risk Exposure Performance Index
Checklist Actions Symbol
REPI ARWP REWP
Ratio of work accomplished against money spent (Efficiency Rating: Work Done for Resources Expended)
Risk Schedule Performance Index
RSPI
Ratio of work accomplished against what should have been done (Efficiency Rating: Work done as compared to what should have been done)
REWS REWP
Management Reserve Ratio
MRR
Ratio of total funds available against total estimated funds expended at completion or total funds available against the budgeted cost at completion multiplied by the cost performance index
TFA EAC
= TFA BAC
X CPI
=
28
Risk Exposure Tracking
Time Now
Estimate To Completion
Risk Exposure Variance Risk Schedule Variance
Plan To Completion
Actual to-date
MRR
CPI
Good
Not so Good
0.8
0.9
1
1.1
1.2
1.3
1.4
0
5000
10000
15000
20000
25000
Jan Mar May Jul Sep Nov Jan Mar May
29
Reference Class Calibration 30
Estimating in the presence of uncertainty
Past performance used to calibrate future estimates
Time phased improvements in upper and lower bounds
Reference Class Step By Step From Nobel Prize to Project Management, Flyvbjerg, 2006
31
Flyvbjerg’s 4–step Approach 32
1) Form the reference class, a collection of similar-to projects for which there
is both history and reasonable insight to the history so that adjustments for
present time can be made.
2) Develop a true distribution of the reference class, and from that
distribution calculate the cumulative probability.
This probability curve, developed from reference class, the outside view.
3) Develop the inside view.
The inside view is a traditional estimate by the project team.
4) Adjust the inside view based on the probability of historical outcome from
the outside view.
Develop a forecast using the reference class probability confidence curve.
Pick a confidence limit, and then adjust the inside view to have a corresponding
confidence.
Integrating the Cost, Schedule and Technical Risk Model for DI-MGMT-81650 Compliance
Cost, Schedule, Technical Model†
WBS
Task 100
Task 101
Task 102
Task 103
Task 104
Task 105
Task 106
Probability
Density
Function
Research the Project
Find Analogies
Ask Endless Questions
Analyze the Results
What can go wrong?
How likely is it to go wrong?
What is the cause?
What is the consequence?
Monte Carlo Simulation
Tool is Mandatory
1.0
.8
.6
.4
.2
0 Days, Facilities, Parts, People
Cumulative Distribution Function
33
Summary
Earned Value methods used
to indicate risks
plan allocation of management reserve
track risk exposure “buydown”
track “buydown” investment
Use for “critical” risks
Account for actions that reduce risk
Fixing risks is cheaper than fixing problems
34
35 Performance Based Management(sm), Copyright ® Glen B. Alleman, 2012
Program Risk Management Process Flow