# PMGT6891 Risk Management

PMGT6891 Risk Management – Learning material

 Assignment 2  Teamwork component Objectives This assignment continues to develop on the material from assignment one. It will deal with schedule contingency and some other key risks of the project. Two techniques will be utilized, decision tree and bow tie analysis to address specific project risks. Risk allocation with the main contractor will be considered. Also reporting on risk contingency reserve during the project.   You can answer the questions here in about 25 pages or less. It should be in the form of a report to management so an executive summary will be very useful. Activity 1 Schedule contingency   You are to recommend to management what the schedule contingency should be for this project. You need to consider the schedule in the embedded spreadsheet. It is not at a low level of detail and therefore you will need to work at a relatively high level and make some assumptions which should be explained.   Using the risk register that you developed for assignment 1, assess the impact on the schedule. It is recommended that you use PERT for  calculating the impact, using a triangular distribution of: ·         optimistic ·         most likely ·         pessimistic durations. Ideally you might use a Monte Carlo simulation but this requires specialized software which you may or may not have, therefore to create a level playing field for all the teams, we will all use PERT.   The current durations for each path in the schedule are provided in the spreadsheet. You can consider these durations as the PERT mean duration, and you will need to consider the schedule impact of your risks on the durations.   Ensure that all assumptions are clearly covered in a tabular format. You will need to show which activities have been changed, cross-referenced to the specific risks in your risk register, and the new the PERT durations.   Management want a 60% confidence level for the schedule so using the normal distribution function in Excel, and your mean and standard deviation derived above, advise them on number of weeks duration for project to achieve that level of confidence. Current overall duration is 120 weeks.   Also you can assume that that there is no existing contingency or padding in the durations.   The embedded spreadsheet shows: ·         a high level summary schedule (in 2 formats excel and M/s project), ·         critical path summary, ·         a partially worked example; ·          and notes on approach to be used. Please ensure you read all the material   Please include the spreadsheet provided here as an appendix to your report in order to show your workings.. Also note we will not be providing M/s Project format soft copy schedule to you, only excel. Activity 2 Decision tree.   Management is seeking to decide whether to retain integration and acceptance testing as an internal activity, or whether to contract this work out to a specialized testing organization.   In the table below the project manager has looked at some major options and identified the probability and likely impact of each. You have been asked to turn this into a decision tree to help them make the best decision.   What is your recommendation based on the decision tree? In your answer briefly explain the benefits and any limitations of the decision tree technique. Activity 3 Bow-tie technique   The GLE organisation has identified a very significant risk for the Customer Management System Project and wants to subject it to further analysis.   Insufficient and in-depth engagement with business stakeholders over significant change to the customer management and billing approach adopted by the new system leads to later re-work in the project. The internal Risk Management Group has recommended the Bow-tie Analysis technique to the project as a suitable analysis tool.   Prepare a bow tie diagram showing: (1 page) ·         Risk event ·         causes ·         prevention controls ·         mitigation or recovery controls ·         and impact or consequences   In addition explain to management the benefits and limitations of the bow-tie technique you have used. Activity 4 Risk allocation   GLE Management have a concern, based on previous experience with contractors, that GLE may end up bearing most of the risk in this project. You have been asked to advise on three options that would ensure the main contractor Able Consulting Group accepts the risks that are under their control.   For each option: ·         describe the approach that you suggest ·         explain what risks should be undertaken by the contractors ·         explain the advantages and disadvantages to GLE in adopting this approach   Advise what is your preferred option in the circumstances. Also advise any actions that GLE management will need to take in order to implement your recommended option. Activity 5 Risk reporting   Based on the information provided below in an embedded spreadsheet prepare a Risk Report for management. This is not the GLE case study you have been using but another more simplified case. Presentation is important here so utilise ideas that capture their attention, which may include charts, graphics etc. Deliverables Ensure that for all the activities explain how you went about doing the work, any assumptions made, and interpret the findings as it relates to the case study.   ·                     Schedule contingency recommendations ·                     Decision Tree example, with explanations ·                     Bow-Tie analysis with explanations ·                     Recommended Approach to allocation of risk with contractors ·                     Risk and contingency reserve reporting Additional material A high level schedule in Excel which you can use to assess and recommend contingency reserve (also includes partially worked example)   Instruction for Schedule Contingency exercise   Risk Reporting register and current status

Decision tree data

Retain in house Prob-ability

## Impact

1. Reduced cost of resources 1.0 Internal resources costed at \$45 per hour or \$360 per day
Effort allowed for = 2,500 days of effort
2.     Also by using internal resources we can retain the knowledge in-house to assist with future changes .9 Estimated value for assisting future changes equals \$50,000 per annum (assume benefit accrues for 3 years)
3.     Following on from 2 above it will give us more project control and flexibility including better awareness of potential overruns .7 Estimated value of this increased control to the project currently is \$10,000
Contract out Prob-ability Impact
1. Higher cost of resources 1.0 Resources costed at \$650 per day
number of day is allowed for equals 1,800
2.     Based on 1 above these resources coupled with using their tools & techniques will result in thorough documentation of tests and results .9 Estimated value for future changes = \$80,000
3.     Following on from 2 above this will also contribute to reduced time, quicker startup, and team ready and trained. Estimated impact on schedule is reduction of 1.5 months .7 Project benefits will accrue once operational at the rate per month of \$150k.
Assume 1.5 months.

Note that 2 and 3 are both subsequent decisions based on previous decision
Notes on the simplistic and rough approach used for the calculation of the schedule contingency in
this spreadsheet due to lack of suitable tools.
Note the schedule is at a summary level of detail. There is some overlap in activities.
You first need to remove the risk shown in the excel spreadsheet as an example
Since the risks that you will use will be different to the ones already in the spreadsheet as an
example there is no right answer to this question. We are looking for whether you are
understanding the process and following it.
1 Some risks in your risk register may not impact on the schedule at all
2 Some risks will impact on multiple activities
3 Some activities will have multiple risk impacting on them
4 You need to prioritise and select only high to medium level risks for consideration
5 Since we do not have Monte Carlo tools we need to use a more simplistic  and rough approach
6 We create an extra line for each activity where there are multiple risks impacting on that
activity
7 The current duration in weeks in spreadsheet is the current PERT mean duration. You will need
to decide new triangular distributions when any risk are applied to an activity.
There is no requirement for you to justify your new triangular distribution, although it will be
somewhat similar to the duration already in the spreadsheet column 3. The risks that you
insert will increase the existing durations.
8 We calculate the impact based on triangular distribution and PERT formulae and also consider
the probability of the risk and how that affects the duration. You do not have to justify the
triangular distribution you use.
9 Where there are multiple risks related to an activity we take the worst case scenario and use
the factored PERT value (duration * probability) to determine which scenario to use.
10 Some risk will not impact on the critical path (the critical path could change but since we have
limited tools we will not attempt to consider that) so the duration impact for non critical path
activities will not be considered
11 All significant assumptions are to be documented
12 Show and explain your workings of the solution. Take a copy of the example spreadsheet and
use this so that we can follow your workings and see if you understand the process. This
spreadsheet should be included as an Appendix to the assignment submission.
13 The column headed “current variance” is based on existing information which you cannot see
in the spreadsheet. You will use this later when calculating variances
You will need to determine whether the risks that you have inserted in the spreadsheet have
an impact on the critical path. If so you will need to calculate a new variance in the column
headed “new variance”
The column headed “critical path variance” on the right‐hand side is derived from the “current
variance” column where the activity is on the critical path.
The column headed “new critical path variance” needs to be calculated by you where the risks
you have inserted impact on the critical path.
You will need to calculate the new mean PERT duration considering impact of risks added
14 Having calculated the new Project Variance based on risks added we can then calculate the
Project Std Deviation
15 From there using the NORMDIST function in Excel we can determine the required duration for
the project at 60% probability. This will make some allowance for the fact that the risks
included in the schedule contingency calculations may not occur.
Formula: (see also week 3 & 4 power point slides for PERT example)
Variance of a task = (pessimistic minus optimistic duration/6) squared
Standard deviation of a task = (pessimistic minus optimistic duration)/6
Project variance = the sum of the variances of the tasks or activities on the critical path
Project standard deviation = square root of project variance
PERT mean = sum of PERT durations for critical path (note only worst case scenario duration if
multiple risks)
For NORMDIST you will need PERT mean duration and Project standard deviation
The schedule is high level and the critical path is only accurate to within 1 week.

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