Risk Event Modeling

1
Risk Event Modeling
Intaver Institute Inc. 303, 6707, Elbow Drive
S.W, Calgary, AB, Canada Tel 1 (403)
692-2252 Fax [phone] www.intaver.com
4280 East Tamiami Trail, 302-M, Naples Florida,
34112, USA Tel [phone]
2
The Project Management Problem
Many projects are unsuccessful!
3
The Project Management Problem
4
The Project Management Problem
5
The Project Management Problem
6
The Project Management Problem
7
Benefits
8
Risk Event Modeling Workflow
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)

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
12
Monte Carlo Schedule Analysis
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 experts
  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?

• Also useful
• Lognornal
• Beta

16
Distribution Fitting
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
23
Eliciting Judgment Probability Method
24
Eliciting Judgment Method of Relative Heights
25
How Many Trials Are Required?

• Huge number of trials (gt 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
29
Project Gantt
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
31
Result Gantt Chart
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
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
Detailed results can be shown for each tasks or
whole project for cost, duration, start time,
finish time, and income.
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
34
Sensitivity
Critical risks need to be mitigated first
Tornado chart shows risks or other parameters
that have the most affect on the project schedule
35
Crucial Tasks
Crucial tasks for project cost and duration can
be different
Crucial tasks have the most affect on the project
schedule
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
Project Think Why Good Managers Make Poor
Project Choices
Project Decisions The Art and Science Introductio
n to Project Risk Management and Decision
Analysis
Project Risk Analysis Made Ridiculously Simple