Building a Risk Tolerant IMS

BUILDING A RISK

TOLERANT IMS

Using Earned Value to manage the risk of a project in terms “risk adjusted physical performance”

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Our Real Motivation is to Increase the Probability of Program Success PoPS

2

Risk Management is about Probability 3

Statistics v. Probability

In building our risk tolerant

IMS, we’re interested in the

probability of a successful

outcome “What is the probability of on

or before planned completion

date?”

The underlying statistics of

the cost, schedule and

technical performance

influence this probability.

The statistics of the task durations, their arrangement in a

network of tasks and correlation define how this probability

based estimated developed.

4

Our DoD Risk Management Process

Anticipate what can go wrong

Communicate

Identify

Plan

Track

Control

Decide what is important

Plan to take action

Correct any deviations

Track all actions

Analyze

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Identify Risks

Risk identification answers the question “What can

go wrong?” by:

Looking at current and proposed staffing, process,

technical, supplier, operational, resources, and any

other dependencies,

Monitoring technical results especially failures,

Reviewing potential shortfalls against expectations,

Analyzing negative trends.

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Communicate

Identify

Plan

Track

Control

Analyze

Analyze Risks

Risk analysis answers the question “How big is the

risk?” by:

Considering the likelihood of the root cause occurrence;

Identifying the possible consequences in terms of

performance, schedule, and cost; and

Identifying the risk level using the “Risk Reporting

Matrix”

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Communicate

Identify

Plan

Track

Control

Analyze

Planning the Risk Response

Risk mitigation planning answers the question “What is the program approach for addressing this potential unfavorable consequence?” One or more of these mitigation options may apply:

Avoiding risk by eliminating the root cause and/or the consequence,

Controlling the cause or consequence,

Transferring the risk, and/or

Assuming the level of risk and continuing on the current program plan.

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Communicate

Identify

Plan

Track

Control

Analyze

Implementing the Risk Pln

Risk mitigation (plan) execution ensures successful risk

mitigation occurs. It answers the question “How can the

planned risk mitigation be implemented?” By:

Determining what planning, budget, and requirements and

contractual changes are needed,

Providing a coordination vehicle for management and other

stakeholders,

Directing the teams to execute the defined and approved

risk mitigation plans,

Outlining the risk reporting requirements for on-going

monitoring, and

Documenting the change history.

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Communicate

Identify

Plan

Track

Control

Analyze

Tracking the Risk

Risk tracking ensures successful risk mitigation. It

answers the question “How are things going?” by:

Communicating risks to all affected stakeholders,

Monitoring risk mitigation plans,

Reviewing regular status updates,

Displaying risk management dynamics by tracking risk

status within the Risk Reporting Matrix, and

Alerting management as to when risk mitigation plans

should be implemented or adjusted.

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Communicate

Identify

Plan

Track

Control

Analyze

Risk Control Processes 11

The control function takes the tracking status reports

for the watched and mitigated program risk and

decides what to do with them based on the

reported data. The general process of controlling

risks includes:

Analyzing the status reports

Deciding how to proceed

Executing the decisions

Communicate

Identify

Plan

Track

Control

Analyze

EV Data

EV Data EV Data

Putting this framework together with EV

Program Manager

Functional Managers

Work Package Managers

Individuals/ Team Members

Identify

Analyze Review Prioritize Evaluate Classify

Track

Plan • Approve plans • Recommend

actions • Develop plans

risks

Top N risks

Top N risks decision

s assign responsibility

trends

risk status

Control • Integrate • Reprioritize • Authorize • Functional area

resources

1 3

2 assign non-top N

12

Connecting EV and Risk Management 13

EV data is assigned to Tasks and Work Packages,

managed by CAMs and WP managers.

They can review, prioritize, evaluate, classify the risks

they know well at the lowest level in the IMS.

In the planning stages of the IMS (or BoE), risks are

revealed during the normal course of work

Identifying and analyzing these risks, again falls on the

CAM and WP Managers.

During the Tracking activities, risks are including the

in standard EVM performance assessment

ETC, EAC, BCWR, and other going forward estimiates

1

2

3

Step by Step Data and Process 14

Identification Activities Overview

EV Data

Statement of risk

Context

List of risks Group/team uncertainties

Individual uncertainties

Project data

PRINCIPLES 1. Non-judgmental 2. Individual voice 3. Multiple perspectives

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Analysis Activities Overview

Master list of risks

Top N

Statement of risk

Impact Probability

Timeframe Classification Rank

List of risks

Statement of risk

Context

PRINCIPLES 1. Most important 2. Vital few 3. Leverage relationships

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Risk Risk

Risk

Risk

Risk Risk

Class 3

Risk

Classification

Class 1 Class 2

Planning Activities Overview

Risk Risk

Risk

Risk

Risk Risk

Class 3

Risk

Classification

Class 1 Class 2

Action plans

Statement of risk Context Impact Probability Timeframe Classification Rank Plan Approach

Project goals and constraints

Resources

Master list of risks

Top N

Statement of risk Context Impact Probability Timeframe Classification Rank

PRINCIPLES 1. Action-oriented 2. Ownership 3. Accountability

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Tracking Activities Overview

PRINCIPLES 1. Risk-driven measures 2. Know your audience 3. Know what success looks like

Action plans

Statement of risk Context Impact Probability Timeframe Classification Rank Plan Approach

Statement of risk Context Impact Probability Timeframe Classification Rank Plan Approach Status Project

data

Risk & mitigation plan measure

Status reports

• risks • mitigation

plans

Resources

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Control Activities Overview

Status reports

• risks • mitigation plans

Project

data

Decisions

• replan • close • invoke

contingency • continue

tracking

Statement of risk

Context Impact Probability Timeframe Classification Rank Plan Approach Status Control Decision

Statement of risk

Context Impact Probability Timeframe Classification Rank Plan Approach Status

PRINCIPLES 1. Follow the plan 2. Conditions change

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Management Reserve

Calculate total project management reserve required

based on

statistical modeling

past experience

0

500

1000

1500

2000

2500

3000

3500

4000

Jan Mar May Jul Sep Nov Jan Mar May

BCWS

Management Reserve

Schedule Reserve

BAC

Total Funds

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Management Reserve Strategy

0

200

400

600

800

1000

1200

Jan Mar May Jul Sep Nov Jan Mar May

Estimate based on

risk evaluation

baseline

Estimate based on

straight-line

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Risk Metrics connected the IMS

WATCH DOMAIN

RIS

K*

Transition Thresholds

PROBLEM DOMAIN

Feb 96 Mar 96 Apr 96

Time

Pessimistic

Expected

Optimistic

MITIGATION DOMAIN

Accept

12

10

8

6

4

2

May 96

Event #1 2 3 4 6 5

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Risk–Earned Value

REWS: Risk Exposure Work Scheduled

Ris

k Ex

po

sure

$$

$

0

1000

2000

3000

4000

5000

6000

Feb Mar Apr May Jun

23

Risk Retirement Plan in the IMS

Time Now

Estimate To Completion

Risk Exposure Variance Schedule Risk Variance

Plan To Completion

Actual to-date

0

5000

10000

15000

20000

25000

Jan Mar May Jul Sep Nov Jan Mar May

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Schedule and Funding Reserve

0

500

1000

1500

2000

2500

3000

3500

4000

Jan Mar May Jul Sep Nov Jan Mar May

BCWS

Management Reserve

Schedule Reserve

BAC

Total Funds

TIME

4500

Negotiated 25

Schedule and Funding Reserve

0

500

1000

1500

2000

2500

3000

3500

4000

Jan Mar May Jul Sep Nov Jan Mar May

BCWS

Management Reserve

Schedule Reserve

BAC

Total Funds

TIME

4500

EAC

negotiated

ACWP BCWP

Now

Schedule slip

Cost overrun

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Management Reserve Ratio (MMR)

MRR: Management Reserve Ratio TFA: Total Funds Available

Ratio of total funds available against total estimated funds expended at completion

0.8

0.9

1

1.1

1.2

1.3

1.4

MRR

CPI

27

MR TFA BACTFA TFAMRR CPIEAC BAC

Risk Data Analysis Relationships

Term Formula

Risk Exposure Performance Index

Checklist Actions Symbol

REPI ARWP REWP

Ratio of work accomplished against money spent (Efficiency Rating: Work Done for Resources Expended)

Risk Schedule Performance Index

RSPI

Ratio of work accomplished against what should have been done (Efficiency Rating: Work done as compared to what should have been done)

REWS REWP

Management Reserve Ratio

MRR

Ratio of total funds available against total estimated funds expended at completion or total funds available against the budgeted cost at completion multiplied by the cost performance index

TFA EAC

= TFA BAC

X CPI

=

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Risk Exposure Tracking

Time Now

Estimate To Completion

Risk Exposure Variance Risk Schedule Variance

Plan To Completion

Actual to-date

MRR

CPI

Good

Not so Good

0.8

0.9

1

1.1

1.2

1.3

1.4

0

5000

10000

15000

20000

25000

Jan Mar May Jul Sep Nov Jan Mar May

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Reference Class Calibration 30

Estimating in the presence of uncertainty

Past performance used to calibrate future estimates

Time phased improvements in upper and lower bounds

Reference Class Step By Step From Nobel Prize to Project Management, Flyvbjerg, 2006

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Flyvbjerg’s 4–step Approach 32

1) Form the reference class, a collection of similar-to projects for which there

is both history and reasonable insight to the history so that adjustments for

present time can be made.

2) Develop a true distribution of the reference class, and from that

distribution calculate the cumulative probability.

This probability curve, developed from reference class, the outside view.

3) Develop the inside view.

The inside view is a traditional estimate by the project team.

4) Adjust the inside view based on the probability of historical outcome from

the outside view.

Develop a forecast using the reference class probability confidence curve.

Pick a confidence limit, and then adjust the inside view to have a corresponding

confidence.

Integrating the Cost, Schedule and Technical Risk Model for DI-MGMT-81650 Compliance

Cost, Schedule, Technical Model†

WBS

Task 100

Task 101

Task 102

Task 103

Task 104

Task 105

Task 106

Probability

Density

Function

Research the Project

Find Analogies

Ask Endless Questions

Analyze the Results

What can go wrong?

How likely is it to go wrong?

What is the cause?

What is the consequence?

Monte Carlo Simulation

Tool is Mandatory

1.0

.8

.6

.4

.2

0 Days, Facilities, Parts, People

Cumulative Distribution Function

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Summary

Earned Value methods used

to indicate risks

plan allocation of management reserve

track risk exposure “buydown”

track “buydown” investment

Use for “critical” risks

Account for actions that reduce risk

Fixing risks is cheaper than fixing problems

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35 Performance Based Management(sm), Copyright ® Glen B. Alleman, 2012

Program Risk Management Process Flow