Advanced Features of Schedule Risk Analysis using the Risk ......David T. Hulett, Ph.D. Hulett &...

Advanced Features of Schedule Risk Analysis using the Risk Driver

Method David T. Hulett, Ph.D.

Hulett & Associates, LLC Construction CPM Conference

San Diego, CA January 16, 2015

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Agenda

• Add uncertainty to the schedule, correlation • Demonstrate the Merge Bias • Using Categories to install reference ranges of

Uncertainty • Adding discrete risk events as Risk Drivers • Probabilistic Branching • Probabilistic Calendars • Inflation • Risk Prioritization • Integrated Cost-Schedule Risk Analysis

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Simplified Progression of Capabilities

• Initially, just applied probability distributions to the activity durations (e.g., PERT) to represent all duration risk

• Within the last 10 years have integrated discrete risk events commonly found in Risk Registers – Relegated 3-point estimates to represent only

inherent uncertainty, estimating error / bias • Added capabilities such as probabilistic

branching, probabilistic calendars and prioritization

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Inserting Uncertainty in the Schedule

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Simple 2-path schedule. Added triangular distribution uncertainties at .9, 1.05 and 1.2 representing the only risk considered here

Results for One Path, No Correlation

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The P-80 value for one path (Test 2) is 15 June 2015

Comparison with and without Correlation = 1.0

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The P-80 value for one path Without Correlation is 15 June 2015

The P-80 value for one path With Correlation = 1.0 is 22 June 2015

Evidence of the Merge Bias

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The P-80 value for each path (without correlation) is 15 June 2015

The P-80 value for the Two Path Schedule 20 June 2015

Introducing the Gas Production Platform Schedule

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Applying Different Uncertainty to Categories of Tasks as Reference Ranges

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Each type of activity may have different levels of uncertainty, called “reference ranges”

Risk on the Offshore Gas Production Platform - Reference Range Uncertainties

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With Uncertainty representing: • Inherent variability • Estimating error • Estimating bias • By category of task

The CPM date is 23 March 2017 The P-80 date is 13 June 2017

Introducing the Risk Driver Method for Causing Additional Variation in the Simulation

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Using the simple 2-path schedule. Four risks are specified. The first is a general risk about engineering productivity, which may be under- or over-estimated, with 100% probability. It is applied to the two Design activities

Risk Driver’s Effect on Design Duration

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With a 100% likely risk the probability distribution of the activity’s duration looks like a triangle. Not any different from placing a triangle directly on the activity

Risk Driver with Risk at < 100% likelihood

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With this risk, the Construction Contractor may or may not be familiar with the technology, the probability is 40% and the risk impact if it happens is .9, 1.1 and 1.4. It is applied to the two Build activities

With a 40% Likelihood, the “Spike” in the Distribution Contains 60% of the Probability

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Here is where the Risk Driver method gets interesting. It can create distributions that reflect: • Probability of occurring • Impact if it does occur Cannot represent these two factors with simple triangular distributions applied to the durations directly

Risk Drivers Models how Correlation Occurs

• Correlation can be caused by identifiable risks that are assigned to two different activities – If the risk occurs it occurs for each activity – If the risk impact multiplier is X% it is X% for each

activity • We are not very good at estimating correlation

coefficients, so generating them within the simulation is a better approach

• There still may be correlations among uncertainty (3-point estimates)

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Risk Drivers Generate Correlation between Activities (1)

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Risk 1: Probability 100% Impact .9, 1.05, 1.3

Activity 1 Activity 1

Correlation (Activity 1, Activity 2) = 100%


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Adding uncorrelated uncertainty reduces correlation (Activity 1, Activity 2) to 86%

Uncertainty Not Correlated: .85, 1, 1.2


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Correlation (Activity 1, Activity 2) = 64%



Activities Can be Influenced by More than One Risk Driver

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An Organizational Risk has been added to the mix, assigned to all activities in the Two Path schedule

Adding Organizational Risk to Every Activity

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With 4 risks including the Organizational Risk added to all 6 activities the P-80 result is 14 July 2015 (Without that risk the P-80 result was 26 June 2015)

Risk Drivers can be Applied In Series or In Parallel

• Two or more risks can be applied to the same activities. If they occur together in an iteration they may be in parallel or in series

• We are talking about the impacts of a risk that has occurred – Risk takes most resources or is so important to be

addressed that recovering from others must wait are entered in series (we have been assuming this)

– Risks can be recovered from simultaneously can be entered in parallel

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Parallel and Series Risks Multiplicative with Risk Drivers

If recovery from two risks can be accomplished simultaneously, they are entered in parallel

Risk 1 1.2 factor

Risk 2 1.05 factor

Use 1.2 Factor, the largest factor, only

Risk 1 1.2 factor Risk 2 1.05 factor Use (1.2 x 1.05 = 1.26) Factor, multiply the two

If these two risks cannot be recovered from simultaneously, they are entered in series

Changing the Risks to In Parallel Reduces the Schedule Risk

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Putting the Risk Drivers in Parallel results in an earlier P-80 of 8 July 2015 (had been 14 July with Risk Drivers in series) This capability is more important if more risks are assigned to the same activities

Failing the Test may lead to Multiple Activities that are Not In the Schedule

• If the test fails we may need to do: – Examine the Root Cause of the failure – Determine what to do next – Do what is needed to be done to recover – Re-test the article

• All of these activities need to be done, or none is needed – These 4 activities constitute a probabilistic branch,

since the possibility of doing them is probabilistic

(C) 2014 Hulett & Associates, LLC 24

Set up the Probabilistic Branch


We create a 4-activity probabilistic branch, adding 4 activities: Root Cause Analysis, Plan the recovery, Execute the Plan and Retest Notice that they all have a remaining duration of 0 working days – they will not affect the schedule unless they occur

Give the New Activities Ranges of Impact, if they Happen


Highlight the new activities in turn an give them uncertainties: • Root Cause Analysis 20d – 40d – 60 d • Plan the Recovery 10d – 20d – 30d • Execute the Plan 10d- 30d- 50d • Retest 20d – 30d – 50d (probably less time than the first test)

With the Probabilistic Branch in Place, Results may show Bi-modal Distribution


Probabilistic branch develops a shoulder at 60% There can be more than one probabilistic outcome from a node. The probabilities need to sum to 100%. Probabilistic branch can represent more planning than just a single probabilistic activity

Showing the Probabilistic Branch in the Bar Chart


Notice that the activities in the branch are designated by an orange milestone (duration zero days) and a flag B Finish is not orange indicating that it has two predecessors, Test 1 and Retest, so technically it is not only in the branch

Probabilistic Calendars (1)

• In many applications a weather-related event can impede progress and affect the schedule without regard to the dates permitted by predecessors – Monsoon weather can impede installation of jackets and

topsides for offshore platforms – Freezing weather can stop supplies getting in to a jobsite – Thawing ground may make it difficult to move equipment

• Other calendar-related events can be important for the schedule – Activities such as moving into a building can be

determined by calendar of events


Probabilistic Calendars (2)

• The static schedule might show that the weather-sensitive activity will take place outside of the weather window

• However, with schedule risk the date of the weather-sensitive activity is uncertain

• Risk on predecessors might push an otherwise safe activity into the weather window, causing it to be unlikely to occur


Simplify Probabilistic Calendar by using Two Path Schedule


Using the 2-Path schedule. There are no risks on this schedule

Probabilistic Calendar Event Editor


> Remove the Winter Weather Window > Select Event > Create the Winter Weather Event January with > Triangular distribution 15d, 20s, 25d in January 2015

Effect of Winter Weather Event


Build 1 finishes with a probability distribution that is 15 – 20 – 25 days beyond its scheduled finish of 3/17/15 because of the weather event that is 100% likely

Set Probability of Winter Weather Event to 50%


Winter Weather Event only 50% Likely


Build 1 may finish in March 2015 but may be delayed by a month because of the 50% likely January weather event

Monsoon Calendar Prohibits Offshore Installation (1)


Monsoon Calendar Prohibits Offshore Installation (2)

• Notice that the installation activities are mostly nominally before the monsoon season that occurs November - February – Exception to this is that Installation CPP Topsides is

already scheduled to complete in November

• With schedule risks on predecessors the other installation activities will occur during monsoon

• This calendar might also affect some pipe laying activities


Fixed Window of Non-Work


> Add Monsoon Calendar > Apply to Installation tasks > Window > add the impact and dates > Enable this calendar

Effect of Probabilistic Calendar on Install Drilling Jacket


Notice that the period from November to the end of February represents no completion because of the calendar. Predecessor activities have usual histograms

Start and Finish of Monsoon Window is Uncertain (1)


Start and Finish of Monsoon Window is Uncertain (2)


Notice that the window of finish dates is now narrower because the start and finish of the Monsoon season is uncertain

Calendar Events can have Different Probabilities and Impacts


Results with Risks, Uncertainties and Three Different Weather Events


Install Drilling Topsides with 3 Weather Event Windows, each with its own impact

Risk Prioritization Method

• Risks should be prioritized through the project schedule and the Monte Carlo simulation method to inform the risk mitigation exercise

• For management we need to identify those risks by “days saved” if they were fully mitigated so management can do benefit/cost

• For management we should identify “days saved” at the target level of certainty, say P-80


Two Approaches to Risk Prioritization using Quantitative Methods

• Typical Tornado Diagram with Risks (not activities or paths) as the arguments help to prioritize the risks

• However, with the structure of the schedule the Tornado Diagram is instructive but not definitive – The order of the risks’ importance can change

when one is removed, since that exposes other paths that were “risk slack paths” before


Use the Offshore Gas Production Platform Project

46 This project has reference ranges by category and 8 Risk Drivers

Standard Sensitivity Tornado


This standard Tornado shows activities in order of their correlation with finish date. These are not risks and risks cannot be teased out of these results, correlations are hard to understand

Criticality Tornado Diagram based on Percent on the Critical Path


Using the Criticality Index. These are also not risks but activities sorted by their percentage of iterations on the critical path Shows which paths are the most likely to delay the project, so new information, but not risks

Tornado Highlighting Risks, Not Activities or Paths


This special risk-based tornado diagram focuses on the entire impact of the risks, including their probability, impact range and the activities to which they are assigned Still, based on correlation concepts It shows Drilling Risk as an Opportunity, negatively correlated with finish date. Correct focus but measure is still correlation

Risk Prioritization Approach • Identify the level of uncertainty desired (P-80) • Simulate the schedule as many times as there are

risks (For the first risk this is = single pass method)

• Then identify the risk that saves the most days when it is eliminated – Eliminating the risk (probability = 0 or “disabled”)

represents complete mitigation, an ideal but impractical goal

– Once the most impactful risk is identified and eliminated, look for the second most-important risk, disable it, then look for the third risk….. This is the Iterative method


Run Prioritization View the Risk List in Priority Order


Prioritized Risks in a Table


The Grid view shows the risks with their “Days Saved.”

Gas Platform-1 - Risk Prioritization (80%)

UID Name Days Saved

8 Organization's engineers may not have the needed experience 50

4 Fabrication Risk Driver 49 2 Engineering Risk Driver 17 7 HUC Risk Driver 16 3 Procurement Risk Driver 8 6 Installation Risk Driver 4 1 Approval Risk Driver 0 5 Drilling Risk Driver 0

Total Risk Drivers Days Saved 144 Uncertainty Responsible for 86 Total Risk Contingency Reserve to the P-80 Level 230

Integrated Cost-Schedule Risk Analysis


Project Schedule built in Primavera P6. Resources include Time-Dependent (labor) and Time-Independent (materials) assigned to the three activities

Polaris shows the same Total Cost $880,000

Add Uncertainty to the Schedule


Simulation Details > Templated Uncertainty > Add > specify Schedule Uncertainty .8, 1.1, 1.5 > Replace Existing Distributions > Apply > Run the simulation 5,000 iterations This causes the schedule uncertainty. With Time-Dependent resources it will also cause cost uncertainty proportional to the uncertainty of the durations x daily cost “burn rate” of Labor and Rented Equipment for each activity LOE (indirects, overhead) would increase too if placed on a hammock activity as Time Dependent

Histogram Results Schedule


Standard Finish Date Histogram CPM date is 3/27/15 which is 8% likely P-80 is 7/30/15

Histogram Results Cost


Cost Histogram Estimated cost is $880,000 which is 6.7 % since time is the only cost risk P-80 is $1,020,000

Create the Cost-Time Scatter Plot


View JCL Scatterplot. “JCL” stands for Joint Confidence Level, which is a NASA term for integrated cost-schedule. Polaris was originally developed for NASA

Properties of the Cost – Time Scatterplot


> Check Regression Line > check Color > Check JCL curve @ 70% > place the crosshairs where the regression line intersects with the JCL curve

Liquidated Damages

• Polaris has flexibility in specifying the structure of Liquidated Damages

• The exposure to Liquidated Damages depends on the contract’s structure and the amount of time the project may be late


Liquidated Damages Scaling Rule


Several approaches to calculating Liquidated Damages

Extent of Schedule Overrun in Days


This gives a number of days. The total planned is 350 days. Note that 350 days is 8% likely Since the P-80 is 425 days and the LD is $1,000 per day the expectation is that the limit of $100,000 will be reached and exceeded, so will be effective

Results for Liquidated Damages


Note that there is some chance that there will be no LDs, and some chance that the maximum value of $100,000 is reached, in this case

Varying the Time Dependent Activities’ Daily Cost or Burn Rate


> Continue using One Path Project Resources > Simulation Options > Resources > Rate per unit or day. Notice the current rate is $800 representing a $100 per hour (burdened) times 8 hours per day per person (only one person needed, apparently) – this was put into Primavera P6 before importing to Polaris > Triangular and insert dollar numbers 700, 800, 900 This range may be based on uncertainty in the workforce, wage rates, general uncertainty in estimating, strength of the economy

Cost Results adding Burn Rate Uncertainty


Schedule results are unchanged The P-80 cost has increased to $1.07 billion

Time – Cost Scatterplot with Schedule and Burn Rate Uncertainty


Cost – finish date correlation is 71%, reduced from 100% by the addition of burn rate uncertainty. There is cost risk even if the schedule is perfectly predictive

Add Uncertainty to the Total Value of Time-Independent Resources


Simulation Details > Resources > Rate per unit or day > select Time Independent resource and enter 90, 120, 170. (The value 100 in the database equates to $200,000 spread over 200 days if 10 units per day are assumed in P6)

Cost Risk with added Time-Independent Resource Risk


P-80 is $1.13 billion with both burn rate and time-independent uncertainty added to schedule risk. Nearly half of the Cost Contingency to the P-80 Target $1.13 B - $.88 B = $.250 B) is from Schedule Risk acting on Time-Dependent resources • Schedule risk contributes

$120,000 • Cost risk on burn rate and

material cost contributes $130,000

Cost Time Scatter with Schedule, Burn Rate and Time-Independent Risk


Correlation between Time and Cost is reduced to 67.5%. At a 70% JCL (70.62 in this case): Schedule to 8/4/15 Budget to $1.125 billion

Joint Confidence Level (JCL)


The trend line, fitted to the data, shows the strong influence schedule risk has on cost risk and validates the need to conduct Integrated cost-schedule risk analysis to understand cost risk The Joint cost-schedule confidence level has been set at 70% (NASA target). The curved blue line shows combinations of time and cost with JCL = 70%

Adding Inflation

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Adding 3% inflation causes the deterministic estimate of cost to increase to $1.69 million from $1.57 million The P-80 costs increase to $1.98 million from $1.82 million

Advanced Features of Schedule Risk Analysis using the Risk Driver

Method David T. Hulett, Ph.D.

Hulett & Associates, LLC Construction CPM Conference

San Diego, CA January 16, 2015

71

Advanced Features of Schedule Risk Analysis using the Risk Driver MethodAgendaSimplified Progression of CapabilitiesInserting Uncertainty in the ScheduleResults for One Path, No Correlation Comparison with and without Correlation = 1.0Evidence of the Merge BiasIntroducing the Gas Production Platform ScheduleApplying Different Uncertainty to Categories of Tasks as Reference RangesRisk on the Offshore Gas Production Platform - Reference Range UncertaintiesIntroducing the Risk Driver Method for Causing Additional Variation in the SimulationRisk Driver’s Effect on Design DurationRisk Driver with �Risk at < 100% likelihoodWith a 40% Likelihood, the “Spike” in the Distribution Contains 60% of the ProbabilityRisk Drivers Models�how Correlation OccursRisk Drivers Generate Correlation between Activities (1)Risk Drivers Generate Correlation between Activities (2)Risk Drivers Generate Correlation between Activities (3)Activities Can be Influenced �by More than One Risk Driver Adding Organizational Risk �to Every Activity Risk Drivers can be Applied �In Series or In ParallelParallel and Series Risks�Multiplicative with Risk DriversChanging the Risks to In Parallel Reduces the Schedule RiskFailing the Test may lead to Multiple Activities that are Not In the ScheduleSet up the Probabilistic BranchGive the New Activities Ranges of Impact, if they HappenWith the Probabilistic Branch in Place, Results may show Bi-modal DistributionShowing the Probabilistic Branch �in the Bar ChartProbabilistic Calendars (1)Probabilistic Calendars (2)Simplify Probabilistic Calendar �by using Two Path ScheduleProbabilistic Calendar Event EditorEffect of Winter Weather EventSet Probability of �Winter Weather Event to 50%Winter Weather Event only 50% LikelyMonsoon Calendar �Prohibits Offshore Installation (1)Monsoon Calendar �Prohibits Offshore Installation (2)Fixed Window of Non-WorkEffect of Probabilistic Calendar on Install Drilling JacketStart and Finish of �Monsoon Window is Uncertain (1)Start and Finish of �Monsoon Window is Uncertain (2)Calendar Events can have Different Probabilities and ImpactsResults with Risks, Uncertainties and Three Different Weather EventsRisk Prioritization MethodTwo Approaches to Risk Prioritization using Quantitative MethodsUse the Offshore Gas Production Platform ProjectStandard Sensitivity TornadoCriticality Tornado Diagram based on Percent on the Critical PathTornado Highlighting Risks, Not Activities or PathsRisk Prioritization ApproachRun Prioritization�View the Risk List in Priority OrderPrioritized Risks in a TableIntegrated Cost-Schedule Risk AnalysisAdd Uncertainty to the ScheduleHistogram Results ScheduleHistogram Results CostCreate the Cost-Time Scatter PlotProperties of the �Cost – Time ScatterplotLiquidated DamagesLiquidated Damages Scaling RuleExtent of Schedule Overrun in DaysResults for Liquidated DamagesVarying the Time Dependent �Activities’ Daily Cost or Burn RateCost Results adding Burn Rate UncertaintyTime – Cost Scatterplot with Schedule and Burn Rate UncertaintyAdd Uncertainty to the Total Value of Time-Independent ResourcesCost Risk with added�Time-Independent Resource RiskCost Time Scatter with Schedule, Burn Rate and Time-Independent RiskJoint Confidence Level (JCL)Adding InflationAdvanced Features of Schedule Risk Analysis using the Risk Driver Method

Advanced Features of Schedule Risk Analysis using the Risk ......David T. Hulett, Ph.D. Hulett &...

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