Tag Archives: Risk Management

Making Sense of Schedule Risk Analysis – Free Event

Mosaic Project Services is pleased to be supporting a free AIPM Project Controls SIG  (PC-SIG) meeting to be held at The Water Rat Hotel, 256 Moray Street, South Melbourne VIC, 3205: http://www.thewaterrathotel.com.au/

Date: Wednesday 20 November 2013,  Start 5.30 pm – Start (note earlier start time) Finish 7.00 pm –  There is no catering for the forum but interested participants are invited to pre and  post- forum drinks at the bar (after all it is a pub!!).

The agenda for the meeting is:

  • 17:30 Welcome to the AIPM SIG COP
  • 17:35 AIPM News – John Williams
  • 17:40 Project Controls Developments – Pat Weaver
  • 17:45 Presentation “Making Sense of Schedule Risk Analysis” – Tony Welsh
  • 18:45 Wrap up
  • 18:50 Close (after-meeting drinks/ dinner option)

The main presenter is Tony Welsh, President, Barbecana Inc. http://www.barbecana.com

Tony was one of the founders of Welcom (producer of Open Plan and Cobra) back in 1983.  He sold the company to Deltek in 2006 and has recently started a new company, Barbecana.

Barbicana

Tony grew up in South East London and holds degrees in physics from Oxford University and in operations research from the London School of Economics. His career began at Imperial Chemical Industries (ICI) under the direction of John Lawrence, a leading light in operations research (O.R.) and editor of the British O.R. Society journal. His work focused on sales forecasting, media scheduling, and measuring the affects of advertising.

Since 1980, Tony has been involved exclusively with project management software, for most of that time at the company he co-founded, Welcom. During that time he has been personally responsible for, among other things, the development of no less than four schedule risk analysis systems.

His paper will start with a brief discussion of the nature of uncertainty and how we measure it, the validity of subjective estimates, and why schedule uncertainty is different and more complex than cost uncertainty.  This will include an explanation of the phenomenon of merge bias.

It will go on to explain how Monte Carlo simulation works and why it is the only valid way to deal with schedule uncertainty.  Reference will be made specifically to uncertainty relating to task durations, resource costs, and project calendars.

The main part of the paper will deal with how to determine the input data, including correlations, and how to interpret the results, including estimated frequency function, cumulative frequency function, and percentile points.

The paper will conclude with a discussion of sensitivity analysis, its value, and the difficulty of doing it properly.

This event is a rare opportunity for Australian based project controls professionals in and around Melbourne to engage with one of the founders of the project controls profession, still active in developing and advancing our skills and knowledge.

To help manage numbers you are asked to register with AIPM at?  http://www.aipm.com.au/iMIS/Events/Event_Display.aspx?EventKey=VI131120&zbrandid=2139&zidType=CH&zid=5168408&zsubscriberId=505907810&zbdom=http://aipm.informz.net  (the event is free).  But as long as you don’t mind the risk of standing, pre-registration is not essential.

As the event sponsor, my hope is we have a really good turnout for the event and look forward to seeing you at The Water Rat – there’s plenty of street parking and the pub is on the #1 tram route.

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The social dynamics of governance – Bullying and Pressure Projects

A number of current news items have highlighted the complexity and interconnectedness of governance in organisations. The blog post is going to draw together four elements – high pressure projects, bullying, the need for organisations to provide a safe workplace and the need to support people with mental illness; all of which have interconnected governance implications.

To lay the foundation for this post, the interconnected nature of governance has been discussed in our post Governance -v- Management: A Functional Perspective  and is best displayed in this ‘petal diagram’

Petal Diagram Governance

The catalyst for this post are some recent changes in Australian workplace legislation that is forcing all types of organisations to consider how they manage the mental health of their paid and volunteer workforce.  In essence these codified requirements are no different to the pre-existing requirements to protect the physical wellbeing of the workforce and others interacting with the organisation, the only difference is mental heath and wellbeing are now overtly covered.

The new uniform national workplace health and safety laws require employers to ensure that workplaces are physically and mentally safe and healthy, and the work environment does not cause mental ill-health or aggravate existing conditions.  Under these harmonised laws ‘reckless conduct’ offences incur penalties of up to $3 million for corporations and $600,000 and/or 5 years jail for individuals.

These challenges cannot be avoided; it remains illegal to discriminate against individuals on the grounds of disability, including mental disability, in the same way it is illegal to discriminate on the grounds of age, sex, race, and religious and other beliefs.

These are not trivial issues as the  $230,000 penalty (fines and costs) awarded  by the Victorian Supreme Court against the former operator of a commercial laundry for ‘workplace abuse’ and the  reputations damage suffered by CSIRO (Australia’s premier scientific research organisation), over on-going bullying allegations demonstrate.

There is a growing awareness of psychological hazards in the workplace including bullying, harassment and fatigue; and the consequences of organisational failures in this area can extend well beyond the strict legal liabilities.  To avoid prosecution and reputational damage, organisations are increasingly being required to take proactive, preventative actions and implement a culture, reinforced by effectively implemented policies to manage these aspects of workplace health and safety. Attitudes are slow to change and creating a culture that properly respects and protects mental wellbeing will require a sustained focus at the governance levels of the organisation as well as in the day-to-day management of the work place.

The payback for good governance and effective management in this area is that organisations that promote good mental health in the workplace are seen as great places to work, and have higher levels of productivity, performance, creativity, and staff retention, and tend to financially outperform other less well governed organisations. These are very similar findings to organisations that actively support and embrace ‘Corporate Social Responsibility (CSR) – apparently the good guys finish first (not last)!!

However, managing this change is not going to be simple!  Organisations are under ever increasing pressure to adapt to a rapidly changing environment and to produce ‘more with less’ to survive. One of the key capabilities enabling quick and effective strategic change is the domain of project and program management. In response to these organisational pressures, project managers are increasingly being placed under stress to be faster, cheaper and better and to deliver the new capability or ‘thing’ in record time.  Couple this to the mistaken belief of some managers that setting ‘stretch targets’ is a way to motivate workers (even though sustained failure is known to be a major cause of stress and demotivation) and you end up with a classic governance dilemma.

Deciding how to best balance these competing demands require an overarching governance policy supported by a sympathetic implementation by management to achieve both a safe work environment and an effective management outcome.  In the absence of effective governance managers are left to sort out their own priorities and frequently are driven by short term KPIs focused on easy to measure cost and time performance criteria. In these circumstances concern for performance frequently outweighs concern for people.

These issues are compounded by the fact that far too many middle and project managers lack effective people skills and can easily drift from pushing for performance to micro management to outright bullying. The mental wellbeing risks include applying undue pressure to perform that induces stress leading to depression; as well as more overt acts of aggression and bullying. The Australian Fair Work Amendment Bill of 2013 defines workplace bullying as ‘repeated, unreasonable behaviour directed towards a worker or group of workers that creates a risk to health or safety’.

Unfortunately, at least in the Australian context, bullying is a major unreported problem. A recent survey by the University of Sydney (see the report summary) has found that workplace bullying tends to be peer-to-peer and occurs at all levels of organisations. Most incidents occur within the presence of one’s peers, including bullying in meetings and other managers are unlikely to intervene. The problem is insidious, nearly 50% of the survey respondents reported bullying in the last year, and only 16% organisation assisted the situation when the problem was reported. But, ignoring the issue is a high risk strategy.

All types of organisation need to develop focused strategies to reduce the opportunities for bullying to occur at every level from the board room table down to the shop floor; and to policies backed by procedures to deal with bullying effectively when it does occur, in ways that support the victims. Bullying is illegal, causing damage to a person’s mental health is illegal (and bullying is only one way this can occur) and failing to effectively manage the consequences of mental illness is illegal.

The ongoing damage being caused to CSIRO’s reputation by the publication of the report into bullying within the organisation demonstrates the way these problems can escalate into a major issue for the Board. The on-going publicity associated with potential litigation and prosecutions has a long way to run before the final wash up allows CSIRO to move forward with a clean slate. And, as the CSIRO report suggests, the consequences of breaking the law are likely to be a small part of the overall damage caused governance failures in this important area.

The reason this is primarily a governance issue is the challenge associated with developing a philosophy and culture that empowers management to resolve the dilemma associated with balancing commercial objectives against personal wellbeing objectives – there is no ‘right answer’.  It is all too easy for executives to decide the organisation needs a new capability, managers being tasked to deliver the required outcome with inadequate resources, and the project manager to be given an unreasonably short timeframe for delivery.  The pressure to ‘perform’ inevitably leading to increases in stress, conflict and potentially bulling. But whilst there are many questions, and decisions, there are few clear answers:

  • When does the need to perform and work extended hours slip into workplace fatigue and an unsafe work environment?
  • When does the project manager’s desire to push team members for maximum performance slip into bullying?
  • Who is responsible for creating the unsafe work environment:
    –  The PM operating at the tactical level?
    –  The managers that set the strategic objectives?
    –  The executives who created the overall environment?
    –  The ‘governors’ who failed to offer appropriate leadership?

Good management can certainly alleviate some of the symptoms, but good governance is needed to eliminate the root cause and promote mental wellbeing in the workplace. At least in Australia there are now effective laws to help and the data shows improving this aspect of an organisation is good for business, and of course excellent stakeholder management.

The Schedule Compliance Risk Assessment Methodology (SCRAM)

SCRAM is an approach for identifying risks to compliance with the program schedule, it is the result of a collaborative effort between Adrian Pitman from the Australian Department of Defence, Angela Tuffley of RedBay Consulting in Australia, and Betsy Clark and Brad Clark of Software Metrics Inc. in the United States.

SCRAM focuses on schedule feasibility and root causes for slippage. It makes no judgment about whether or not a project is technically feasible. SCRAM can be used:

  • By organisations to construct a schedule that maximizes the likelihood of schedule compliance.
  • To ensure common risks are addressed before the project schedule is baselined at the commencement of a project.
  • To monitor project status, performed either ad hoc or to support appropriate milestone reviews
  • To evaluate challenged projects, to assess the likelihood of schedule compliance, root cause of schedule slippage and recommend remediation of project issues

Whilst the documentation is intensely bureaucratic, the concepts in SCRAM move beyond the concepts embedded in processes such as the DCMA 14 point checklist  to asking hard questions about the requirements of stakeholders and how effectively risk has been addressed before baselineing the schedule.

The SCRAM concept is freely available.  The SCRAM Process Reference Model (PRM) and a Process Assessment Model (PAM) documents are available for immediate download from: https://sites.google.com/site/scramsitenew/home

For more on schedule risk assessment and compliance assessment see: http://www.mosaicprojects.com.au/Planning.html#S-Risk

What’s the Probability??

The solution to this question is simple but complex….

Probability2

There is a 1 in 10 chance the ‘Go Live’ date will be delayed by Project 1
There is a 1 in 10 chance the ‘Go Live’ date will be delayed by Project 2
There is a 2 in 10 chance the ‘Go Live’ date will be delayed by Project 3

What is the probability of going live on March 1st?

To understand this problem let’s look at the role of dice:

If role the dice and get a 1 the project is delayed, any other number it is on time or early.
If you role 1 dice, the probability is 1 in 6 it will land on 1 = 0.1666 or 16.66% therefore there is a 100 – 16.66 = 83.34% probability of success.

Similarly, if you roll 2 dice, there are 36 possible combinations, and the possibilities of losing are: 1:1, 1:2, 1:3, 1:4, 1:5, 1:6, 6:1, 5:1, 4:1, 3:1, 2:1. (11 possibilities)

diceposs

The way this is calculated (in preference to using the graphic) is to take the number of ways a single die will NOT show a 1 when rolled (five) and multiply this by the number of ways the second die will NOT show a 1 when rolled. (Also five.) 5 x 5 = 25. Subtract this from the total number of ways two dice can appear (36) and we have our answer…eleven.
(source: http://www.edcollins.com/backgammon/diceprob.htm)

Therefore the probability of rolling a 1 and being late are 11/36 = 0.3055 or 30.55%, therefore the probability of success is 100 – 30.55 = 69.45% probability of being on time.

If we roll 3 dice we can extend the calculation above as follows:
The number of possible outcomes are 6 x 6 x 6 = 216
The number of ways not to show a 1 are 5 x 5 x 5 = 125

Meaning there are 216 combinations and there are 125 ways of NOT rolling a 1
leaving 216 – 125 = 91 possibilities of rolling a 1
(or you can do it the hard way: 1:1:1, 1:1:2, 1:1:3, etc.)

91/216 = 0.4213 or 42.13% probability of failure therefore there is a
100 – 42.13 = 57.87% probability of success.

So going back to the original problem:

Project 1 has a 1 in 10 chance of causing a delay
Project 2 has a 1 in 10 chance of causing a delay
Project 3 has a 1 in 5 chance of causing a delay

There are 10 x 10 x 5 = 500 possible outcomes and within this 9 x 9 x 4 = 324 ways of not being late. 500 – 324 leaves 176 ways of being late. 176/500 = 0.352 or a 35.2% probability of not making the ‘Go Live’ date.
Or a 100 – 35.2 = 64.8% probability of being on time.

The quicker way to calculate this is simply to multiply the probabilities together:

0.9 x 0.9 x 0.8 = 64.8%

These calculations have been added to our White Paper on Probability.

A Technical question for the risk experts??

Three schedule activities of 10 days duration each need to be complete before their outputs can be integrated.

Probability

Activity 1 & 2 both have a 90% probability of achieving the estimated duration of 10 days.

Activity 3 has an 80% probability of achieving the 10 days.

Scenario 1:

The three activities are in parallel with no cross dependencies, what is the probability of the integration activity starting on schedule?

Possible solution #1

There is a 10% probability of the start being delayed by Activity 1 overrunning.
There is a 10% probability of the start being delayed by Activity 2 overrunning.
There is a 20% probability of the start being delayed by Activity 3 overrunning.

Therefore in aggregate there is a 40% probability of the start being delayed meaning there is a 60% probability of the integration activity starting on time.

Possible solution #2

The three activities are in parallel and the start of the integration is dependent on all 3 activities achieving their target duration. The probability of a ‘fair coin toss’ landing on heads 3 times in a row is 0.5 x 0.5 x 0.5 = 0.125  (an independent series)

Therefore the probability of the three activities achieving ‘on time’ completion as opposed to ‘late’ completion should be 0.9 x 0.9 x 0.8 = 0.648 or a 64.8% probability of the integration activity starting on time.

Which of these probabilities are correct?

Scenario #2

The more usual project scheduling situation where activities 1, 2 and 3 are joined ‘Finish-to-Start’ in series (an interdependent series). Is there any way of determining the probability of activity 4 starting on time from the information provided or are range estimates needed to deal with the probability of the activities finishing early as well as late?

There is a correct answer and an explanation – see the next post
(its too long for a comment)

Value is created by embracing risk effectively

The latest briefing from the real ‘Risk Doctor’, Dr David Hillson #75: RESOLVING COBB’S PARADOX? starts with the proposition: When Martin Cobb was CIO for the Secretariat of the Treasury Board of Canada in 1995, he asked a question which has become known as Cobb’s Paradox: “We know why projects fail; we know how to prevent their failure – so why do they still fail?” Speaking at a recent UK conference, the UK Government’s adviser on efficiency Sir Peter Gershon laid down a challenge to the project management profession: “Projects and programmes should be delivered within cost, on time, delivering the anticipated benefits.” Taking up the Gershon Challenge, the UK Association for Project Management (APM) has defined its 2020 Vision as “A world in which all projects succeed.” The briefing then goes on to highlight basic flaw in these ambitions – the uncertainty associated with various types of risk. (Download the briefing from: http://www.risk-doctor.com/briefings)

Whilst agreeing with the concepts in David’s briefing, I don’t feel he has gone far enough! Fundamentally, the only way to achieve the APM objective of a “world in which all projects succeed” is to stop doing projects! We either stop doing projects – no projects – no risks – no failures. Or approximate ‘no risk’ by creating massive time and cost contingencies and taking every other precaution to remove any vestige of uncertainty; the inevitable consequence being to make projects massively time consuming and unnecessarily expensive resulting in massive reductions in the value created by the few projects that can be afforded.

The genesis of Cobb’s Paradox was a workshop focused on avoidable failures caused by the repetition of known errors – essentially management incompetence! No one argues this type of failure should be tolerated although bad management practices mainly at the middle and senior management levels in organisations and poor governance oversight from the organisation’s mean this type of failing is still all too common. (for more on the causes of failure see: Project or Management Failures )

However, assuming good project management practice, good middle and senior management support and good governance oversight, in an organisation focused on maximising the creation of value some level of project failure should be expected, in fact some failure is desirable!

In a well-crafted portfolio with well managed projects, the amount of contingency included within each project should only be sufficient to off-set risks that can be reasonably expected to occur including variability in estimates and known-unknowns that will probably occur. This keeps the cost and duration of the individual projects as low as possible, but, using the Gartner definitions of ‘failure’ guarantees some projects will fail by finishing late or over budget.

Whilst managing unknown-unknowns and low probability risks should remain as part of the normal project risk management processes, contingent allowances for this type of risk should be excluded from the individual projects. Consequently, when this type of risk eventuates, the project will fail. However, the effect of the ‘law of averages’ means the amount of additional contingency needed at the portfolio level to protect the organisation from these ‘expected failures’ is much lower than the aggregate ‘padding’ that would be needed to be added to each individual project to achieve the same probability of success/failure. (For more on this see: Averaging the Power of Portfolios)

Even after all of this there is still a probability of overall failure. If there is a 95% certainty the portfolio will be successful (which is ridiculously high), there is still a 5% probability of failure. Maximum value is likely to be achieved around the 80% probability of success meaning an inevitable 20% probability of failure.

Furthermore, a focus on maximising value also means if you have better project managers or better processes you set tighter objectives to optimise the overall portfolio outcome by accepting the same sensible level of risk. Both sporting and management coaches understand the value of ‘stretch assignments’ – people don’t know how good they are until they are stretched! The only problem with failure in these circumstances is failing to learn and failing to use the learning to improve next time. (For more on this see: How to Suffer Successfully)

The management challenge is firstly to eliminate unnecessary failures by improving the overall management and governance of projects within an organisation. Then rather than setting a totally unachievable and unrealistic objective that is guaranteed to fail, accept that risk is real and use pragmatic risk management that maximises value. As David points out in his briefing: “Projects should exist in a risk-balanced portfolio. The concept of risk efficiency should be built into the way a portfolio of projects is built, with a balance between risk and reward. This will normally include some high-risk/high-reward projects, and it would not be surprising if some of these fail to deliver the expected value.”

Creating the maximum possible value is helped by skilled managers, effective processes and all of the other facets of ‘good project management’ but not if these capabilities are wasted in a forlorn attempt to ‘remove all risk’ and avoid all failure. The skill of managing projects within an organisation’s overall portfolio is accepting sensible risks in proportion to the expected gains and being careful not to ‘bet the farm’ on any one outcome. Then by actively managing the accepted risks the probability of success and value creation are both maximised.

So in summary, failure is not necessary bad, provided you are failing for the ‘right reason’ – and I would suggest getting the balance right is the real art of effective project risk management in portfolios!

Stakeholders and Risk

Probably the biggest single challenge in stakeholder communication is dealing with risk – I have touched on this subject a few times recently because it is so important at all levels of communication.

Projects are by definition uncertain – you are trying to predict a future outcome and as the failure of economic forecasts and doomsday prophets routinely demonstrate (and bookmakers have always known), making predictions is easy; getting the prediction correct is very difficult.

Most future outcomes will become a definite fact; only one horse wins a race, the activity will only take one precise duration to complete. What is uncertain is what we know about the ‘winner’ or the duration in advance of the event. The future once it happens will be a precise set of historical facts, until that point there is always a degree of uncertainty, and this is where the communication challenge starts to get interesting……

The major anomaly is the way people deal with uncertainty. As Douglas Hubbard points out in his book the Failure of Risk Management: “He saw no fundamental irony in his position: Because he believed he did not have enough data to estimate a range, he had to estimate a point”. If someone asks you what a meal costs in your favourite restaurant, do you answer precisely $83.56 or do you say something like “usually between $70 and $100 depending on what you select”? An alternative answer would be ‘around $85’ but this is less useful than the range answer because your friend still needs to understand how much cash to take for the meal and this requires an appreciation of the range of uncertainties.

In social conversations most people are happy to provide useful information with range estimates and uncertainty included to make the conversation helpful to the person needing to plan their actions. In business the tendency is to expect the precisely wrong single value. Your estimate of $83.56 has a 1 in 3000 chance of actually occurring (assuming a uniform distribution of outcomes in a $30 range). The problem of precisely wrong data is discussed in Is what you heard what I meant?.

The next problem is in understanding how much you can reasonably expect to know about the future.

  • Some future outcomes such as the roll of a ‘true dice’ have a defined range (1 to 6) but previous rolls have absolutely no influence on subsequent rolls, any number can occur on any roll.
  • Some future outcomes can be understood better if you invest in appropriate research, the uncertainty cannot be removed, but the ‘range’ can be refined.

This ‘know-ability’ interacts with the type of uncertainty. Some future events (risks) simply will or won’t happen (eg, when you drop your china coffee mug onto the floor it will either break or not break – if it’s broken you bin the rubbish, if it’s not broken you wash the mug and in both situations you clean up the mess). Other uncertainties have a range of potential outcomes and the range may be capable of being influenced if you take appropriate measures.

The interaction of these two factors is demonstrated in the chart below, although it is important to recognise there are not absolute values most uncertainties tend towards one option or the other but apart from artificial events such as the roll of a dice, most natural uncertainties occur within the overall continuum.

Stakeholders and Risk - Risk Matrix

Putting the two together, to communicate risk effectively to stakeholders (typically clients or senior managers) your first challenge is to allow uncertainty into the discussion – this may require a significant effort if your manager wants the illusion of certainty so he/she can pretend the future is completely controllable and defined. This type of self-delusion is dangerous and it’s you who will be blamed when the illusion unravels so its worth making the effort to open up the discussion around uncertainty.

Then the second challenge is to recognise the type of uncertainty you are dealing with based on the matrix above and focus your efforts to reduce uncertainty on the factors where you can learn more and can have a beneficial effect on future outcomes. The options for managing the four quadrants above are quite different:

  • Aleatoric Incidents have to be avoided (ie, don’t drop the mug!)
  • Epistemic Incidents need allowances in your planning – you cannot control the weather but you can make appropriate allowances – determining what’s appropriate needs research.
  • Aleatoric Variables are best avoided but the cost of avoidance needs to be balanced against the cost of the event, the range of outcomes and your ability to vary the severity. You can avoid a car accident by not driving; most people accept the risk and buy insurance.
  • Epistemic Variables are usually the best options for understanding and improvement. Tools such as Monte Carlo analysis can help focus your efforts on the items within the overall project where you can get the best returns on your investments in improvement.

Based on this framework your communication with management can be used to help focus your efforts to reduce uncertainty within the project appropriately. You do not need to waste time studying the breakability of mugs when dropped; you need to focus on avoiding the accident in the first place. Conversely, understanding the interaction of variability and criticality on schedule activities to proactively managing those with the highest risk is likely to be valuable.

Now all you have to do is convince your senior stakeholders that this is a good idea; always assuming you have any after the 21st December!*

____________________

*The current ‘doomsday’ prophecy is based on the Mayan Calendar ending on 21st December 2012 but there may be other reasons for this:

Stakeholders and Risk Myan Prediction