Advanced Project

Schedule Risk Analysis

David T. Hulett, Ph.D.

Hulett & Associates, LLC
Project Management Consultants

Los Angeles, CA
(310) 476-7699
info@projectrisk.com
www.projectrisk.com

© 2004 Hulett & Associates, LLC 1

 Agenda

• Uncertain activity durations

• Simple one-path schedule risk
• Risk at merge points: the “Merge Bias”
• Correlation among uncertain durations
• Probabilistic Branching
• Conditional Branching
• Resources
• Constraints

© 2004 Hulett & Associates, LLC 2

 Activity Duration Risk

30d

Design Unit 1

• How long will this activity take? 30 days, right?

• Project personnel estimate the most likely
duration for each activity

© 2004 Hulett & Associates, LLC 3

 Activity Duration Risk

• First, the schedule must be checked

– Calculates the right critical path
– Calculates the right end date when things change
– Finish-to-start relationships, no open ends…
• Then risks are identified using checklists and
brainstorming techniques
• Risk on activities is quantified using team meetings
and in-depth interviews
• A schedule risk analysis is a snapshot in time of
the risks that remain before further mitigation

© 2004 Hulett & Associates, LLC 4

 Design Unit 1 Duration
Uncertainty

Distribution for Design Unit 1

Triangle (20,30,60)

0.07
Low=20d 0.06
PROBABILITY

Most 0.05
Likely=30 0.04
0.03
High=60d 0.02
0.01
0.00
20

24

28

32

36

40

44

48

52

56
© 2004 Hulett & Associates, LLC 5
 Risk Along a Path

Start Design Unit 1 Build Unit 1 Finish

© 2004 Hulett & Associates, LLC 6

 Original Single-Path
Schedule

• CPM schedule finishes on December 4.

What is the likelihood?
• Simulation tool
@RISK for Project Professional from Palisade Corp.
© 2004 Hulett & Associates, LLC 7
 Monte Carlo Simulation

• A simulation explores all combinations of durations

of uncertain (and certain) activities
• Durations are chosen at random from input
distributions
• The project is calculated (Press [F-9])
• Completion dates computed many times
• Distribution of completion dates
• Cumulative likelihood provides results

© 2004 Hulett & Associates, LLC 8

Completion Dates from
Simulation
Frequency Distribution
for Project Finish

Most Likely
0.10CPM Date
Completion Date
PROBABILITY

0.08
0.06
0.04
0.02
0.00
11/15

11/24

12/12

12/21

12/30
12/3

1/8

1/17

1/26

2/4
© 2004 Hulett & Associates, LLC
Date
9
The Fallacy of Most Likely
Durations
• People sometimes say:
“Well, at least if we use the best estimates in our
schedule the CPM completion date is the most
likely date. Isn’t it?”

No, Never!
• In this case,
– CPM says December 4
– But the Most Likely completion date is
December 15
© 2004 Hulett & Associates, LLC 10
 Cumulative Distribution

December 10 is Cumulative Distribution

only 10% Likely for Project Finish
Prob of Value <= X-axis

1.0
0.9
0.8
0.7 CPM
80% Likely
Value

0.6
0.5 Date
0.4 12/4 Schedule 1/3
0.3
0.2
0.1
0.0
11/15

11/24

12/12

12/21

12/30
12/3

1/8

1/17

1/26

2/4
Date
© 2004 Hulett & Associates, LLC 11
 Results for Simple
Single-Path Schedule: CPM = 10%
Summary Statistics
for Project Finish
Minimum 11/18
Maximum 2/6
Mean 12/22
Std Deviation 13
Mode 12/15
5% 12/1
CPM
10% 12/5
20% 12/11
30% 12/14
40% 12/18
50% 12/21
60% 12/25
70% 12/29
80% 1/3 80%
©90%
2004 Hulett & Associates,
1/9 LLC 12
95% 1/14
Risk at Path Merge Points
The “Merge Bias”

Design Unit 1 Build Unit 1

Start
Finish

Design Unit 2 Build Unit 2

© 2004 Hulett & Associates, LLC 13

 Simple Two-Path Project

• CPM says this project also completes on

December 4
• But, Risk is greater than for the single-path
project!
© 2004 Hulett & Associates, LLC 14
Effect of the Merge Bias
Distribution for Project Finish
One and Two Path Schedules

1.0
CPM Date
Prob of value <= X-Axis

0.9
0.8
0.7
0.6
Value

0.5
0.4
One-Path Two-Path
0.3 Schedule Schedule
0.2
0.1
0.0
11/15
11/22
11/29

12/13
12/20
12/27
11/1
11/8

12/6

1/3
1/10
1/17
1/24
1/31
2/7
Date
© 2004 Hulett & Associates, LLC 15
 Comparison of Two Risky
Schedules: CPM < 5%
Evidence of the Merge Bias
Two Paths
One Path Merge Bias
Mean 12/22 12/29
Mode 12/18 12/31
Std Deviation 13.1 11.5
CPM
5% 12/1 12/11
CPM 10% 12/5 12/15
20% 12/11 12/19
30% 12/15 12/23
40% 12/18 12/26
50% 12/22 12/29
60% 12/25 1/1
70% 12/29 1/4
80% 1/2 1/8 80%
90%
© 2004 Hulett 1/9 1/13
& Associates, LLC 16
95% 1/14 1/19
 Defining the
Risk Critical Path/Activities
• With hundreds or thousands of activities, which
are most likely to delay the project?
– Depends on risk, project structure (float)
• Simulation program records whether an activity
was critical in each iteration

Percent of iterations each activity was critical

= its Criticality Index

© 2004 Hulett & Associates, LLC 17

Schedule with Risk
Management
of Critical Unit B

Slack Path
Not Managed

Risk Managed
Critical Path

© 2004 Hulett & Associates, LLC 18

 Criticality or % of
Iterations on Critical Path
Criticality Index
Percent
Task Critical
Component A 80%
Design A 80%
Build A 80%
Test A 80%
Component B 20%
Design B 20%
Build B 20%
Test ©B2004 Hulett & Associates,
20% LLC 19
 Correlation Between
Activity Durations
• Correlation when some risk factor (“driver”)
affects the durations of two activities together
• Difficult technology makes design and build take
longer
• Severe working conditions affect design and build
• Permit uncertainty affect design and build
S/W
Technology Development
Risk
S/W Testing

© 2004 Hulett & Associates, LLC 20

 Correlation

• Correlation makes the durations “move” together

• If one activity takes longer than estimated the
other does too
• Both activities will take more (or less) time
together
• Correlation increases the risk of extreme results

© 2004 Hulett & Associates, LLC 21

 Add Significant Correlation
to Single Path Schedule

Correlation Matrix
Design / Build / Test /
Duration Duration Duration
Design/Duration 1 0.8 0.6
Build/Duration 0.8 1 0.9
Test/Duration 0.6 0.9 1

© 2004 Hulett & Associates, LLC 22

Correlations Increase the
Spread of the Results
Distribution
Distribution for Correlated
and Not Correlated Durations

0.16
Not
Correlated
Relative Likelihood

0.12
Correlated
0.08

0.04

0.00
11/14

11/27

12/11

12/24
11/1

1/7

1/20

2/2

2/16

3/1
Date
© 2004 Hulett & Associates, LLC 23
Correlations Increase the
Spread of the Results
Distribution
S-Curve for Correlated and Not
Correlated Durations
Prob Value <= Value on

1.0 Not
0.9 Correlated
0.8
0.7 Correlated
X-Axis

0.6
0.5
0.4
0.3
0.2
0.1
0.0
11/14

11/27

12/11

12/24
11/1

1/7

1/20

2/2

2/16

3/1
Date
© 2004 Hulett & Associates, LLC 24
 Probabilistic Branching

• When the outcome of an activity is not certain

– Article is not certain to pass the test the first time
• The successor activity may be one or the other
– Pass the test? ==> Certify
– Fail the test? ==> End Test, Diagnose, FIXIT and retest
• Each one of these is a “branch” and has some
probability

© 2004 Hulett & Associates, LLC 25

 Probabilistic Branching

I Recommend Indicating the Possibility of

Failure in the CPM Schedule – Here at the
Expected Value of the Most Likely Duration

© 2004 Hulett & Associates, LLC 26

 Network Logic of Test
Failure Probabilistic Branch

© 2004 Hulett & Associates, LLC 27

Probabilistic Branching
Histogram
Distribution for Project Finish
Success
0.14 Branch
0.12 Failure
PROBABILITY

0.10 Branch
0.08
0.06
0.04
0.02
0.00
01

01

01

02
1

2
/0

/0

/0

/0
3/

2/

1/

7/
/5

19

25

16
/2

/1

/3

2/
11

1/

2/

3/
11

12

12

Date
© 2004 Hulett & Associates, LLC 28
Cumulative Distribution of
Probabilistic Branch
Cumulative Distribution for Finish
Prob of Value <= X-axis

1
0.8
Value

0.6
0.4 “Shoulder” at
70% Success
0.2
0
11 0 1

12 1

12 0 1

1/ 1

2/ 2
11 01

12 01

1/ 2

2
0
/0

/0

/0
0

0
6/

7/

0/

1/

3/
/

/
/5

/8

11

23

14
/1

/2

/2

/3

2/
11

Date
© 2004 Hulett & Associates, LLC 29
 Conditional Branching

• Model decisions, e.g. alternative technology

decision
• Technology A
– Preferred by the customer
– A lot of schedule Risk
• Technology B
– Not preferred, but acceptable
– Less schedule risk than A

© 2004 Hulett & Associates, LLC 30

Model Technology Decision

© 2004 Hulett & Associates, LLC 31

 Technology A Alone: No
Plan B? A = 100%
Cumulative Distribution Technology A: No Plan B
Technology A: No Plan B Task Critical Index
Mean 2/4
Mode 2/2 Technology A 100%
10% 1/5 Design Tech. A 100%
20% 1/13 Make & Qual Tech A 100%
30% 1/20
40% 1/27
Technology B 0%
50% 2/2 Design Tech. B 0%
60% 2/9 Make & Qual Tech B 0%
70% 2/17
80% 2/25 Pr(Plan A) = 100%
90% © 2004 Hulett & Associates, LLC
3/10 32
 If Technology A Design not
done by 10/25: Plan B

Unique ID Name Duration @RISK: Functions

2 Start Milestone 0d
8 Technology A 125 d
3 Design Tech. A 50 d Duration=RiskTRIANG(40,50,100)
5 Make & Qual Tech A 75 d Duration=RiskTRIANG(55,75,150);RiskIF(t3[Finish]>10/25/01,t5[Duration]=0)
9 Technology B 120 d
4 Design Tech. B 50 d Duration=RiskTRIANG(45,50,60)
6 Make & Qual Tech B 70 d Duration=RiskTRIANG(60,70,90);RiskIF(t3[Finish]<10/25/01,t6[Duration]=0)
7 Finish Milestone 0d Finish=RiskOUTPUT()

© 2004 Hulett & Associates, LLC 33

 Switch to Plan B if Design for
Plan A is Not done by 10/25
Cumulative Distribution Cumulative Distribution
Switch to Plan B on 10/25 Switch to Plan B on 10/25
Mean 1/11/02 Task Critical Index
Mode 1/2/02 Technology A 29%
10% 12/30/01 Design Tech. A 29%
20% 1/2/02 Make & Qual Tech A 29%
30% 1/4/02 Technology B 70%
40% 1/6/02 Design Tech. B 12%
50% 1/8/02 Make & Qual Tech B 71%
60% 1/10/02 Finish Milestone 100%
70% 1/13/02
80% 1/18/02 Pr(Plan A) = 29%
90% 1/29/02
© 2004 Hulett & Associates, LLC 34
 Decision Rule Trade-Off

• Trade off
– Likelihood of completing on time
– Likelihood of using Preferred Technology A

Model the Technology / Schedule Trade-Off

Tech A: No Tech. B
Measure Plan B After 10/25
Optimistic (10%) 1/5 12/30
Mean Completion 2/4 1/11
Pessimistic (90%) 3/10 1/29
Probability of Using
Technology A 100% 29%
© 2004 Hulett & Associates, LLC 35
Resources and Constraints

• If there are scarce resources, they must not be in

conflict in the schedule
– In CPM, scheduling packages will “level” resources – this
means shifting activities out
– Since simulation is a number of CPM calculations, each
iteration must be leveled
• Schedulers often use constraints
– Eliminate the Constraints – let the project overrun on
the computer, not the real project
– Must Finish On, and Finish No Later Than will hide the
risk

© 2004 Hulett & Associates, LLC 36

 Resource Leveling

Effect of Resource Leveling

Prob Value <= X-Axis Date

1.0
0.9
0.8
0.7 Not
0.6 Leveled
0.5 Resource
0.4 Leveled
0.3
0.2
0.1
0.0
11/20

12/10

12/29
11/1

1/18

2/6

2/26

3/17

4/6

4/25
Date

© 2004 Hulett & Associates, LLC 37

 Effect of Constraints

Effect of Constraining Schedule

to Finish Not Later Than 12/11
Prob of Value <= X-axis

1.0
0.9
0.8
0.7 Constrained
Value

0.6
0.5 Not
0.4
0.3 Constrained
0.2
0.1
0.0
11/13

11/25

12/19

12/31
11/1

12/7

1/12

1/24

2/5

2/17
Date
© 2004 Hulett & Associates, LLC 38
 Advanced Project
Schedule Risk Analysis

David T. Hulett, Ph.D.

Hulett & Associates, LLC
Project Management Consultants

Los Angeles, CA
(310) 476-7699
info@projectrisk.com
www.projectrisk.com

© 2004 Hulett & Associates, LLC 39