Calculating contingency for management reserve

Understanding risk

contingency and MR

- how risk tools can help

Val Jonas

Risk Decisions Group

11th April 2013

© Risk Decisions, 2013

Agenda

How tools can help calculate:

Cost contingency (MS Excel, @Risk & Predict!)

Schedule contingency (MS Project, Primavera, Predict!)

PPP rollup of contingency & Management Reserve The Contract Budget Baseline (Deltek Cobra)

How tools can help manage contingency

Cost benefit analysis

Managing action draw down of MR budget

Summary


Distributed +

Undistributed Budget

Negotiated Cost 610k

Emergent risk budget

Baseline budget

Programme MR (held for the project)

Project MR

Programme budget

Project budget

Known risk budget

The total project budget

MR = Management Reserve


Baseline budget – spreadsheet estimates

Range of results generally bell shaped

with some right hand skew

MS Excel with @Risk add-in


Baseline budget

Generally calculated during bidding process

Only re-calculated if project is re-baselined

Contract established

Responsibility lies with budget holder (Control Account

Manager)

Managed via variance analysis (Earned Value process)


Distributed +




Baseline budget

Programme MR (for the project)

Project MR

Programme budget

Project budget

Known risk budget

Known risk budget


Known risk budget – based on risk register

Risk register probability & impact

(Predict! Risk Controller)

Predict!

Risk

Analyser Range of results generally skewed

(long right hand tail).


Known risk budget

Project MR is residual risk Mitigation actions are included in baseline budget

MR held at project level Authority to drawdown against known risks only

Used for (additional) mitigation and recovery actions

Re-assessed at regular intervals throughout project

Tools manage permissions at PPP levels Audit trail in risk register, cost & schedule toolsets


Schedule Reserve – uncertainty + risks

Completion date

Budg

et (£

k)

Known risks

Baseline

X

0

12,000

24,000

36,000

48,000

60,000

72,000

84,000

Emergent risks

Jun 2013 Jul 2013 Aug 2013 Sep 2013 Oct 2013 Nov 2013 Dec 2013 Jan 2014 Feb 2014 Mar 2014

Schedule

uncertainty

1

Schedule

reserve

2

Contract

milestone

buffer

3


Schedule MR – Schedule & risk register Clean logic linked schedule (MS Project / Primavera)

1

+ risks (from Predict! risk register) 2


Gantt and Tornado charts Deterministic schedule Tornado chart Risked Gantt chart


Schedule reserve (sMR)

Review individual milestones as well as whole project

Baseline (working) milestones should not include sMR

Contractual milestones should include sMR buffer

Schedule buffers should be managed by project

Drawdown (schedule and budget) against known risks only

Used for (additional) mitigation and recovery actions

Managed via Risk Management process

Audit trail in risk register


Agenda








Summary


Programme MR 10k

Programme CBB 10k



Project budget


Known risk budget

The Contract Budget Baseline (including emergent risk)

10k

Project CBB 600k

Distributed +


572k

Project MR 28k

Deltek

Cobra

600k


Agenda








Summary


The benefit of response actions


Action Transfer – into PMB

Approve an action to

mitigate a threat,

exploit an opportunity

or recover from realised

risk

Probability

% Weeks Cost (k) % Weeks Cost (k)

Redesign required to meet building regs 10% 10 4 No 10% 10 4

Planning permission delays 20% 16 15 Yes 20% 16 2

Contractor goes bankrupt 35% 4 10 No 5% 4 3

EU competitive tender required 0% 12 2 No 0% 12 2

Groundworks problems 20% 6 20 No 20% 6 2

Shared services require re-routing 40% 4 5 No 40% 4 5

Retaining wall needs rebuilding 5% 6 15 No 5% 6 15

Steel shortage 50% 20 5 No 50% 20 5

Impact Mitigation

Approved

Post mitigation

Action: PR campaign – 2k

Transfer work

and budget

into the PMB


Project 1

MR 28k

Budget 600k

DB 572k

Cost MR for known risks

Action draw down (for known risk)

Mitigation action

transferred from

Predict! Risk Controller

to Cobra

Project 1

MR 26k

Budget 600k

DB 574k

Cost MR for known risks


Audit trail for MR MR baseline set

in Cobra

Mitigation action draw

down from MR to

distributed budget


Dashboards at programme level


Agenda








Summary


@Risk (for MS Excel)

Spreadsheet addin

Apply uncertainty to existing spreadsheets

Use on risk register data exported to MS Excel

Mostly used for cost risk analysis

Familiarity of MS Excel is an advantage


Predict! (Risk Controller and Analyser)

Enterprise risk management

Multi project, programme, portfolio (PPP)

Integrated toolset

Risk, issue, opportunity and uncertainty management

Cost & Schedule risk analysis for uncertainty & risk

MS Project & Primavera interface

Audit trail

Mitigation/recovery action ownership, approval & drawdown


Deltek Cobra

Cost management tool

Earned Value presents schedule and cost progress as a

measure of cost

WBS (imported) from scheduling tool basis for cost control

Analyse budgets, actuals and forecasts

Time phased, resourced

Report against baseline, forecast final project costs

Multi project view


Questions

Predict! Risk Controller/Analyser: www.riskdecisions.com

@Risk: www.palisade.com

Cobra: www.deltek.com

Primavera: www.oracle.com

[email protected] +44(0)7831 881297

Contact details:

http://www.riskdecisions.com/

http://www.palisade.com/

http://www.deltek.com/

http://www.oracle.com/


Interfacing Risk & Earned Value Management

ISBN- 10: 1-903494-24-9 ISBN- 13: 978-1-903494-24-0

www.apm.org.uk/interfacingRiskandEarnedValueManagement.asp

http://www.apm.org.uk/interfacingriskandearnedvaluemanagement.asp

Calculating contingency for management reserve

Business

Transcript of Calculating contingency for management reserve