Risk Analysis
Project management decisions are concerned with the future. While planners hope to influence the outcome of events by the decisions they make, everything about the future is, to a greater or lesser extent, uncertain.
The techniques of risk analysis were developed to provide a consistent methodology for quantifying this uncertainty with the ultimate goal of improving the quality of decisions.
By definition, project management involves the planning and coordination of large numbers of activities for which there are often no precise precedents. The durations and costs of the individual activities making up the project cannot be known exactly before the project begins. A project plan is a forecast and, thus, contains elements of uncertainty.
Using the tools of modern risk analysis, Open Plan enables you to quantify the uncertainties associated with project durations. When using this feature, you enter three durations (optimistic, pessimistic, and most likely) for activities. During the risk analysis process, Open Plan estimates the duration for these activities using random numbers and runs time analysis a large number of times. By precisely defining the probable range of the durations of each activity, Open Plan provides you with the means to model the impact of these uncertainties on such critical areas as:
- The project completion date
- The feasibility of achieving specific target dates
Briefly stated, Open Plan risk analysis works by:
- Enabling you to enter three durations (optimistic, pessimistic, and most likely) for key activities
- Enabling you to enter probability distributions for duration for some or all of the activities in a project
- Performing a risk analysis using Monte Carlo simulation to establish estimates of the effects of these parameters on project dates
- Producing views and reports that can be used in analyzing the impact of uncertainties on the performance of the project
How Risk Analysis Works
In many ways, the risk analysis function is similar to the time analysis process. Activities are sorted according to project logic and subjected to a forward and backward pass in order to establish the earliest and latest dates for each activity.
In risk analysis, however, the process of calculating the early and late dates for each activity is based on a sampling of the probable durations. This sampling is repeated many times in order to build up a statistical picture of the probable outcomes of the project based on the combinations of the individual durations of the activities.
Unlike time analysis, the resulting dates and values for early dates, late dates, and activity floats are not calculated as single deterministic values. Instead, statistical means and standard deviations are used to express these values.
Another statistical measure calculated for each activity during risk analysis is a criticality index. This index represents the percentage of simulation trials which resulted in the activity being placed on the critical path.
When running risk analysis, you can specify the number of iterations to be performed. Generally speaking, the more iterations performed, the more accurate the results of risk analysis.
Batch Mode
You can perform risk analysis in Batch Mode. This enables you to run risk analysis for multiple projects at one time. To run risk analysis in Batch Mode, select more than one project from the Details pane of the Open Plan Explorer and then click the Risk Analysis button. The Risk Analysis [Batch Mode] dialog box displays. Set your options and then click OK.
If a project is closed, Open Plan will open it in Exclusive mode, perform the process, save the changes, and then close the project. If a project cannot be opened in Exclusive mode (because another user has it open in Exclusive or Shared mode), it will be skipped.
If you have a project open when the batch process is run, risk analysis will be performed on the project, but the changes will not be saved and the project will remain open. You must manually save the changes yourself.
Risk analysis for multiple projects can also be run by selecting a group of projects and clicking the Perform Risk Analysis button on the Processes tab.
Open Plan creates one risk analysis session log, listing the project results in the order in which the projects were processed in the batch.
Related Topics
- Activity Details Risk Tab
- Overview of Probability
- Probability in Durations
- Risk Analysis Output Files
- How Risk Analysis interprets Durations
- The Effect of Risk Analysis on Start Dates
- The Concept of Sampling Error
- How Risk Analysis Calculates Finish Dates
- Progress and Duration Probability
- Interpreting the Results of Risk Analysis
- Using the Risk Analysis Options Tab
- Using the Risk Analysis Advanced Tab
- Project Analysis