- What is Digital Risk Management?
- Why Schedule for Agile environment?
- How Monte Carlos Simulation will help to answer the question and concerns of key stakeholders.
Digital electronics is based on “0 or 1” normally open or normally closed. Digital electronics provide the basis to fourth industrial revolution or second (2nd) machine age. It is evolving and following “Morse Law” and expending exponentially. Computing power is also growing substantially to provide support in planning, designing and producing new innovative products either virtually or physical.
Combined power of digital electronics (digital) and computing are leading to lively recombinant innovations that are reshaping the business. Word. More and more tech. companies are securing place in top 100 among fortune 500 companies. [Add forbes or Mackenzie research)
Even integration of virtual (data, data analytics, AI, VR, AR, neural networks) and physical products ( robots, drones, 3D printers) are increasing leading to solving very complex problems which were not possible earlier.
One this is common in digital project that is coding. Scrum, Agile and Kanban are very much integrated for progressive elaboration and developing software development project. Although agility is major concept in IT project management, but still waterfall with gating review is predominant for program management. Some how for digital projects, interfacing is challenging and require to follow schedule and cost estimating best practices to avoid pitfalls during execution to avoid program failure.
Whether it’s waterfall or agile project management, project schedule is utmost to plan and tack project activities. Agile project schedule is required to be developed, to portray incremental and iterative activities. Define short development please in schedule i.e. Sprint. Sprint is defined by the available time “timebox and resources. It will help to schedule to estimate time and cost simultaneously. Velocity helps to measure work completed, planned vs actual, during single Phase or sprint.
Project schedule drives the project execution. Project often slip their schedules. Schedule delay, for whatever reason, is resulting in losing monetary benefits, unsatisfied management and losing opportunity to gain potential market share. A single delay in executing a “Story” can cause financial loss and reputational loss together.
After creating the schedule, reviewing schedule with project management team (PMT) is helpful to identify and correct any schedule error.
It’s best industrial practice to perform project schedule diagnostics. Dissection of schedule using DCMA 14 points schedule inspection criteria is providing schedule’s complete picture. It helps to highlight grey areas and provides recombination for corrective actions. Schedule diagnostics is given below:
Quantitative Schedule Risk Analysis (QSRA)
Already discuss regarding schedule review and diagnostics using 14-point assessment.
For Quantitative Schedule Risk Analysis (QSRA), need project schedule that presents all necessary activities with resource allocation. Apply activity uncertainty and link risks to an activities. That is enough?
Certainly not. Completeness and proper activity linkage are important for performing Monte Carlo Simulation. It’s best industrial practice to perform project schedule diagnostics.
A Quantitative Schedule Risk Analysis (QSRA) uses probability distribution to run Monte Carlo simulation using key risks to activities. A QSRA is a combination of critical path method (CPM) schedule, risks from risk register and linking risks to activities (risk driver) and statistical distribution to analyze data and predict level of confidence in meeting project’s completion date and duration. It helps to calculate schedule contingency
Level 1 schedule contains major milestones and level of uncertainty in estimating schedule duration is high. Level -1 schedule is developed based on past experiences and Heuristics assumptions that can be higher or lower i.e. uncertainty as lack of information or complete picture. Therefore, sensitivity analysis helps to identify the key activities or risks contributing to project delay.
Focus of analysis is on but not limited to:
- Uncertainty and risk impact to an activity and overall project duration and finish time.
- What-if schedule will delay by one (1) week or one (1) month?
- Which risk impact most to overall schedule?
Quantitative Cost Risk Analysis (QCRA)
Cost is the main driver for making decision. It’s the key factor that make happy or unhappy the management. Business is all about monetary benefits. Class 5 cost estimate is developed during project initiation. Typical ranges for Class 5 cost estimate as per AACE can be ± 50% or ±100%. Uncertainty is high and confidence level is low. Therefore, it is necessary to consider all fixed and variable costs including overheads. Apply uncertainty and risk to model cost using probability distribution.
Integrated Cost schedule Risk Analysis (IRA)
In Integrated cost schedule risk analysis, schedule is developed with time-phased cost to analyze the combine effect of risk on schedule and cost simultaneously. After running the simulation, joint confidence level for cost and schedule can be presented for decision making and specifying contingency for both schedule and cost.
Digital Software Risk Management
Risk management, especially the quantitative risk analysis is missing part in software project development. More focus on reactive approach that is issue and incident management than a proactive approach risk management. In recent days as technology evolving and companies are transitioning to digital world. i.e. digital transformation need of quantitative risk management is evident. Throughout the software development life cycle (SDLC). There are many sources of uncertainties and risks that can leading to schedule delay and cost overrun.
There can be many apparent or hidden sources of risks like, bleeding edge technology, hardware, obsolete technology, technology interfacing, inadequate resources, software configuration, security issues, patches and digital platforms etc.
Digital project Case study:
Project schedule ( level 1) is given below:
Testing & Quality Assurance
Time-phased cost has allocated to the activities. Resources are estimated as follows:
Rate /hr ($)
Uncertainties are calculated as per expert judgement and similar project experience:
Testing & Quality Assurance
Analyzing different scenarios provide alternative to make decision. Schedule with Uncertainties. Elaborate Uncertainty and Risk with respect to different standards or guidelines will help to understand these two terms. Also, need to understand the relationship between these two terms.
According to the PMI Practice Standard for Project Risk Management:
A risk is an uncertain event or condition, if it occurs, has a positive or negative effect on a project’s objectives.
According to ISO 73:2009:
Effect of Uncertainties on Objectives
Note: 5 – Uncertainty is the state, even partial, of deficiency of information related to, understanding or knowledge of, an event, its consequence, or likelihood.
Uncertainty can be known – Known (e.g. During holidays there will be a low worker’s productivity). Know unknown, know the uncertainty, but the impact is unknown (e.g. Periodic Union strikes during a month). Unknown – Unknown ( e.g. flood, hurricane where it is difficult to predict the exact timing and overall impact.).
- Activity A – Duration 10 Days
- Activity B – Duration 5 Days
- Activity C – Duration 12 Days
These are the estimated values. Question is What if a required resource will not be available for 3 days? To cater to these uncertainties, three-point estimates are being used i.e. Optimistic, Most Likely and Pessimistic. The uncertainty should not be heuristics. Assumptions made should be validated.
Also, currency rate fluctuation and raw material prices are a good example of uncertainty.
Risk is a product of probability X impact i.e. P X I
like late delivery of material at the site
or the Unavailability of a skilled worker.
Risk must be defined by using Risk meta language i.e. Cause – Risk – Impact
Because of many concurrent projects in an area (cause), Skilled worker might not be available (Risk) leading to schedule delay, cost impact, and poor quality (effect or impact)
Risk identification in early stage of project is important. It is very important to link only relevant risks to project schedule and cost. List of five (5) identified risks are:
In quantitative analysis, the impact is a calculated value based on how it effects different project parameters such as schedule, finish time, cost etc and is not equal to the input impacts. The underlying methodology used for calculating both impact and scores is based on sensitivity analysis using Spearman Rank Order correlation coefficients. When scores or impacts are below 1%, they are often rounded down to 0. In practical terms it means that the three risks have only an extremely small impact on your project schedule .
Results After Monte Carlo Simulation
Monte Carl simulation helps to specify schedule and cost contingencies. Percentage (%) allocation of cost contingency is varied industry to industry. Rule of thumb is 10%. However, between 10 % to 20% is usually considered. 50% chance is taking as actual schedule completion date. 80% is taking as contingency reserves. 80% to 100% is taken as management reserves.
It is important that specify mitigation actions and try to avoid risk or mitigate the risk by making changes in schedule, cost and other estimates.
Schedule and cost baselines can not be defined without risk management in particular.