Assignment EMRM5103 Risk Management (Full)

Name: Mohd. Norizam Bin Md.
Salleh
Matriculation No.: CGS 00534317
Assignment: EMRM5103
JANUARY SEMESTER 2011
MASTER PROJECT MANAGEMENT
ASSIGNMENT
LECTURER
ASSOC PROF SAMIAPPAN MARAPPAN
STUDENT
MOHD. NORIZAM BIN MD. SALLEH

Name: Mohd. Norizam Bin Md. Salleh
ANSWER ALL QUESTIONS
Part A
Question 1
You have been recently appointed as the project manager for a large project. The risk
management team for this project has never used quantitative risk analysis in all of
the projects that it has been involved with in the past. Prepare a presentation
outlining the advantages and the techniques of quantitative risk analysis to this risk
management team with the aim of encouraging its use by this team. [14 marks]
Answer 1
A Quantitative Analysis often involves more sophisticated techniques, usually

requiring computer software. To some people this is the most formal aspect of
the whole process requiring:
• Measurement of uncertainty in cost and time estimates.
• Probabilistic combination of individual uncertainties.
Such techniques can be applied with varying levels of effort ranging from
modest to extensively thorough. It is recommended that new users start
slowly, perhaps even ignoring this sub-stage, until a climate of acceptability
has been developed for Project Risk Analysis and Management in the
organisation.
An initial qualitative analysis is essential. It brings considerable benefit in

terms of understanding the project and its problems irrespective of whether or
not a quantitative analysis is carried out. It may also serve to highlight
possibilities for risk “closure”’ i.e. the development of a specific plan to deal
with a specific risk issue.
Experience has shown that qualitative analysis - Identifying and Assessing

Risks - usually leads to an initial, if simple, level of quantitative analysis. If,
for any reason - such as time or resource pressure or cost constraints - both
a qualitative and quantitative analysis is impossible, it is the qualitative analysis
that should remain.
It should be noted that procedures for decision making will need to be modified
if risk analysis is adopted. An example which illustrates this point is the
sanction decision for clients, where estimates of cost and time will be produced
in the form of ranges and associated probabilities rather than single value
Question 1 – Pg 1
figures.
The Quantitative Risk Analysis so called the numerically analyzing the effect
of identified risk on overall project objectives are shown in Figure 1 and 2
below.
Figure 1: Perform Quantitative Risk Analysis: Inputs, Tools & Techniques

and Output.
Figure 2: Perform Quantitative Risk Analysis Data Flow Diagram.
Once all risks have been identified, during the qualitative analysis, it may
be appropriate to enter into a detailed quantitative analysis. This will enable
the impacts of the risks to be quantified against the three basic project success
criteria; cost, time and performance. Several techniques have been developed
for analysing the effect of risks on the final cost and time-scale of projects.
However, such techniques do not always readily apply themselves to the
analysis of performance objectives.
Question 1 – Pg 2
The main techniques currently in use are:
• Sensitivity Analysis often considered being the simplest form of risk

analysis. Essentially, it simply determines the effect on the whole
project of changing one of its risk variables such as delays in design or
the cost of materials. Its importance is that it often highlights how the
effect of a single change in one risk variable can produce a marked
difference in the project outcome.
In practice, a sensitivity analysis will be performed for more than one risk,
perhaps all identified risks, in order to establish those which have a
potentially high impact on the cost or time-scale of the project. The
technique can also be used to address the impact of risk on the
economic return of a project.
One typical display of sensitivity analysis is tornado diagram, which is

useful for comparing relative importance and impact of variables that
have a high degree of uncertainty to those that are more stable.
Figure 3: Tornado Diagram - Project Risk vs Project Cost.
• Probabilistic Analysis specifies a probability distribution for each risk and

then considers the effect of risks in combination. This is perhaps the most
common method of performing a quantitative risk analysis and is the
one most people consider, incorrectly, to be synonymous with the whole
Project Risk Analysis and Management process. In fact, as this Guide
illustrates, it is but one facet of that process.
The most common form of probabilistic analysis uses ’sampling

techniques’, usually referred to as ’Monte Carlo Simulation’. This
method relies on the random calculation of values that fall within a
Question 1 – Pg 3
specified probability distribution often described by using three estimates:

minimum or optimistic, mean or most likely and maximum or pessimistic.
The overall outcome for the project is derived by the combination of
values selected for each one of the risks. The calculation is repeated a
number of times, perhaps between 100 and 1000, to obtain the
probability distribution of the project outcome.
It is usual to carry out a probabilistic time analysis with the aid of a

CPM network to model the project schedule. The same method can be
used for probabilistic cost analysis especially when the cost estimate can
be broken down into the same categories or activities as the schedule and
when cost risks are related to time risks. If an independent cost analysis
is undertaken then.
It may be appropriate to use a spreadsheet method to derive a

histogram and cumulative curve from a probabilistic time analysis using
a model based on a CPM network.
Another technique is the Controlled Interval and Memory Method for

combining probability distributions which provides an alternative to
Monte Carlo Simulation. This technique cans offer greater precision for
much less computerised effort if either complex CPM networks or feedback
loops are not involved.
Figure 4: Cost Risk Simulation Results.
Question 1 – Pg 4
• Influence Diagrams are a relatively new technique for risk analysis. They
provide a powerful means of constructing models of the issues in a project
which are subject to risk. As a result influence diagrams are now used as
the user interface to a computer based risk modelling tool thus allowing
the development of very complex risk models that can be used to analyse
the cost, time and economic parameters of projects.
• Decision Trees are another graphical method of structuring models. They

bring together the information needed to make project decisions and show
the present possible courses of action and all future possible outcomes.
Each outcome must be given a probability value indicating its likelihood of
occurrence. This form of risk analysis is often used in the cost risk
analysis of projects.
Figure 5: Decision Tree Diagram
The quantitative risk analysis advantages can be summarised as below;
• More objectivity in its assessment.

• Offers direct projection of cost/benefit of a project/proposal.
• More powerful selling tool to company’s senior management.
• Can be fine-tuned to meet the needs of specific situations
• Can also be modified to fit the needs of specific industries
• Much less prone to arouse disagreements during management review
• Analysis is often derived from some irrefutable facts.
• Development of new security project proposal management skills
Question 1 – Pg 5
• Potentially lure new business through the use of good quantitative analysis to
tap into projects that were previously out of reach.
• Broaden existing consulting services by adding on cost-effective, high-ROI
security improvement strategies and action plans.
• Better prioritizing of projects – can set priority based on ROI.
• Effective means to manage limited department resources.
• Easier to obtain funding from senior management.
• Improved performance metrics for the company/department as cost & benefit
information can clearly define.
• Less susceptible to issues relating to company politics
• Reduced time requirement for assessing the validity of proposals
• Allows the end results to be tied to the company’s financial objectives more
quickly
Conclusion
Quantitative Risk Management helps to meet the probability of meeting the time and
cost objectives. Helps to prioritizing high-threat risks and allows one to respond
proactively before the problem erupted. Monitoring the risk trends closely shall enable
you to control risk management treats over time.
This shall help you to successfully manage the project risk and able to meet the
project objectives which are completion within the limited time given, within budgeted
cost at acceptable quality, safety and durability.
Question 1 – Pg 6
Question 2
a. Identify the key features of the various commercial project management

softwares available in the market.
b. Explain in some detail how such softwares enable project risk management.
[14 marks]
Answer 2 (a).
There are so many project management software available in the market Project
management software is a computer applications specifically designed to aid
planning and controlling resources, costs and schedules of a project. Software
project management is designed to avoid high failure rate. Software project
management is a sub-discipline of project management.
The various project management software available in the market, are namely
Microsoft Office Project, Primavera, Project Manager Software, Web Based Project
Management Software, Project Tracking Software, Software Project Management
Tools, Project Management Software Tool, CPM Software, PERT Software, Gantt
software and other such as PrioSoft’s Contractor Office, Basecamp, Central
Desktop, Go Plan, Project Desk, Zoho, DotProject, CS Project – Crest Software and
others.
The followings are including but not limited to the following key features of the various
commercial project management softwares;
• Record the WBS- the deliverables

• Break the deliverables into activities
• Assign durations, constraints, predecessors and successors to activities
• Calculate the start and finish dates
• Assign resources and/ or costs to activities
• Optimize the project plan
• Set Baselines to compare progress
• Approve work
• Record the actual progress
• Compare progress against the original plan
• Amend the plan for scope changes etc. and
• Produce management reports.
• Import/export format.
Question 2- Pg 1
Project management software covers many areas, including estimation,

planning, scheduling, cost control and budget management, resource
allocation, collaboration software, communication, quick access to information and
effective leveraging of existing data, which are used to deal with the complexity of
large projects.
Project management software can be very useful especially when there involve large
and multiple larger projects.
Effective work planning features shall be used to plan schedules, allocate resources,
manage budgets, and set realistic expectations for the team, management, and
customers. The data can easily track and estimates such as percent complete,
budget versus actual cost, and earned value by using a set of predefined metrics. For
example in construction works, we shall be able to manage the times and the budget
efficiently.
Scheduling is the process to allowed project managers to shift schedules such in

easily way. The software leverages all task dependencies and types to automatically
update the project schedule if the schedule changes.
The following are the summary of features that offers by one of the project
management software called Primavera. It was introduced in early 80’s, since then it
has became very popular tool by schedulers, project managers, QS and claims
consultants. In 1999, Primavera introduced an entirely new Critical Path Method
(CPM) scheduling package designed for enterprise-wide project management which
changed names almost yearly. P3 remained “P3” while this new enterprise-wide
software is now called either P5 (short-hand for Primavera Project Manager™) or
P6™ (for the Enterprise Version 6.)
Primavera project management software e.g. Primavera P6 assists in tracking project

scheduling, used for costs, estimation, resource leveling, time tracking, cost
comparison and planning to measure progress toward objectives. It is the most
powerful software, robust, and easy to use solution for globally prioritizing, managing
and executing projects, programs and portfolios across the entire organization.
Primavera is a user friendly data entries for all users even the beginner users shall
also be able to operate the system easily. In other words, primavera is considered as.
In addition the new features are more simplified and reduce training time and speed
up adoption to all users. Primavera P6 are powerful web access for all users and all
projects simultaneously, easy display for all the software functionality, easy Gantt use
Question 2- Pg 2
such as graphic tool which objective is to show the estimated time investment for
different tasks or activities in a determined total period, use of control panels for
advanced decision making control and other.
Primavera Project Manager Deployment & Implementation including but not

limited to the following:
1.1. Software Installation, standalone and or network installation
1.2 Develop Organizational Structures, such as

1.2.1 Enterprise Project Structure (EPS)
1.2.2 Organization Breakdown Structure (OBS)
1.2.3 Resource Breakdown Structure (RBS)
1.3 Finance Graph.
1.4. Develop Global and Resource calendars
1.5. Create customized layouts, filters and reports
1.6. Develop schedule development, updating, control procedures
Menu Schedule Development:
Develop full cost and resource loaded schedule;
2.1. Create Work Breakdown Structure (WBS)
Figure 1: Project scope defined by using the WBS
2.2. Create project codes

2.3. Insert activities with logic, in consultation with your project team
2.4. Load schedule with budgeted labor and non labor hours, costs and expenses.
Question 2- Pg 3
2.5. Create Target / Baseline schedule.
Question 2- Pg 4
2.6
.
Figure 2: Provide planned resource/cost loading reports.
2.7. Provide planned cash flows.

2.8. Bid and proposal schedule development.
2.9. Level 3 and level 4 detailed contract schedule development.
Menu Schedule Updating:
3.1. Update projects on regular set intervals which will include:
3.1.1. Collecting update data,

3.1.1.1. Estimate to Complete
3.1.1.2. % Complete
3.1.1.3. Actual hours/cost incurred
3.1.2. Entering data in to the schedule
3.1.3. Changing data date and recalculating the schedule
Question 2- Pg 5
3.1.4.
Figure 3: Identify problem areas
3.1.5. Report produced and all the informations and charts can be compiled.
3.1.5.1. Estimate to Complete (ETC)
3.1.5.2. Forecast at Completion (FAC)
3.1.5.3. Variance reports. Such as Schedule, Budget and Cost
3.1.6. Corrective action, can be done.
Menu Resource Analysis:
Managing labour and non labour resources and cost /expenses associated with them
by:
4.1. Producing planned resource loading / requirement reports

4.2. Updating schedule with actual resource usage / consumption
Question 2- Pg 6
Figure 4: Tracking Resources Chart.
4.3. Resource levelling.

4.4. Cash flow and analysis.
Menu Performance Reports:
Reports indicating health of the project at a certain point of time such as:
5.1. Activities Completion Report, number of activities completed against planned

5.2. Milestone Completion Report, number of milestone achieved against planned
5.3. Deliverables Completion Report, number of deliverables completed.
5.4.
Figure 5: Number of activities scheduled vs. completed in a reporting period
Question 2- Pg 7
5.5. Number of not scheduled activities completed for the reporting period
5.6. Project Dashboard
5.7. Executive Summary
5.8. Portfolio Analysis and reporting
5.9. Portfolio dashboard and executive summary.
6.0. WBS (Work Breakdown Schedule) analysis and reporting
Menu Earned Value Management System (EVMS) Implementation:
Implement Earned Value Management System, can create graphs and reports for the
following:
6.1. S-Curves
6.2. Earned Value
6.3. Cost Performance Index (CPI)
6.4. Schedule Performance Index (SPI)
Figure 6: Scheduling to analyze project float path
Master Schedule
The master schedule shows all the activities in your project. The CPM (Critical Path
Method) activity bars, progress bars, and activity bars with floats clearly show you the
Question 2- Pg 8
Figure 7: Sample Master Schedule.
Target/Baseline Schedule
The Target/baseline Schedule helps each stakeholder and team member quickly see
where they are now, compared to where they should be. Multiple targets/baselines
can be established throughout the project lifetime. When compared with the primary
target/baseline, you can determine true health of the project; the achievements, the
failures, and the problems. This provides legitimacy to change order requests, extra
payment requests, etc.
Pert Schedule
The Pert view helps you quickly evaluate, track, and adjust your network logic. It's a
great tool to have a bird-eye-view of your logic.
Gantt/Bar Charts
The Gantt/Bar chart view also helps you evaluate, track, and adjust your network
logic. It's another tool for improving project quality.
Resource Loading Reports
These reports provide information concerning proper allocation and utilization of

project resources. Are you 'redlined?' You can determine if you have the necessary
Question 2- Pg 9
resources to complete the project on time. We suggest three minimum project

baselines to control the project schedule, resources, and its scope.
Costs Loading Reports
Observe total cost of the project or easily determine the total cost incurred at any
given point in time. Also provides you information on difference between planned and
actual cost.
Cash Flow Analysis
Cash flow analysis report helps you determine future projections of your project cash
flow. This report is critical for securing adequate amount of funding to properly
execute the project.
Variance Schedule Variance Report
Monitor your schedule performance by observing any noticeable differences between

what you planned and where you stand today.
Budget Variance Report
Keep track of your budget performance by viewing significant differences between

what you planned and what you actually spent.
Status Report
Can be used to compile weekly and monthly status report. The report tracks items,
such as, meetings minutes, problems discussed, solutions proposed, and other
general information for the stakeholders and project team members.
Change Management
Using project management software, it can help you to manage changes in your
project when they occur. We can also help you determine how these changes affect
the schedule and its cost. With this information in hand, you can answer the question,
'Do we need extra time and funding to complete the work?'
Conflict Resolution
It can help you analyze the project problems and conflicts. If necessary, we assist you
and your legal team by reconstructing important schedule and cost information to
build your case. With the historical information in hand, we can build a project
schedule even after significant progress on the project has occurred. We can then
Question 2- Pg 10
analyze the schedule variance and other information like project cost, cost variance,
and earned value.
Coding of Accounts
Using a coding feature, it can help you predict if more time or funding is required for
your project; even help you determine which activities need a special attention.
Monthly Updates
Can perform monthly update of actual work completed base from the information
directly gathered from the department manager, engineers, PM, or from interim
payment certificates.
Project wizard, adding activity wizard, import and export wizard, report wizard and
project link (MS Project). It has also offers users the web-based project functionality
to be ensuring that the web project management gives the project team anywhere,
anytime access to the projects they are assigned to work on.
Import/export Data
Figure 8: Import key to Other Various Software Format.
Question 2- Pg 11
Answer 2 (b).
Most large corporations or large projects require project risk analysis to verify
feasibility of the project and whether the project is time or resource sensitive. Risk
analysis helps to identify problem areas and help to formulate a mitigation plan. Risk
Management Softwares shall help in identifying risk factors and handling those risk
factors. Risk should be established early in a software project and continuously
addressed throughout the system lifecycle.
A Project Risk is a potential problem that would be detrimental to a project’s success

therefore it is crucial to identify and respond to the potential problems with sufficient
lead time to avoid a crisis.
The first step in Risk Management is identification of project risk factors, as risk
cannot be analyzed or handled until they are identified and described in an
understandable way. Risk Identification is an organized, through approach to seeking
out the real risks associated with a program.
Tracking risk enables companies or project for better assess uncertainties. Project
management software aids them in identification, definition, estimation and analyses
of those uncertainties, which improves their competitive position.
Most project management software e.g. Primavera can also be used to identify,
quantify risks, plan, monitor and manage project risk.
Identify high risk task

Identify high risk task is about examine those tasks that are most likely to take longer
than expected, end beyond their finish dates, delay the start or finish of other tasks,
or cause the project schedule to drag. This shall be able to be reviewed through the
task of list, scheduling and CPM.
Identify the high risk task are including shows the task with start and end date,
estimated durations, task with long durations, shows the critical path, shows the task
with external dependencies, review the task constraints and check the task that are
behind schedule.
The estimated durations shall allow Primavera to see the tasks that has information
pending. Tasks with uncertain lengths contribute to uncertainty in determining the
project end date. An estimated duration is a current best guess at how long users
believe a task will take to complete.
Question 2- Pg 12
Figure 9: Critical Path.
There is a function in Primavera that allows the project team to monitor/track the
work progress versus planned. The purpose is to meet a specific finish date and to
keep eye on the critical path towards success. This shall help the project team to
monitor or trigger the problem shall any of the task are dragged or they can adjust the
completion of non critical task not to finished beyond the critical task.
Tasks with long duration will allow us to see the tasks for which schedule or cost
increases may have a significant impact on the project end date or total cost and able
to see the tasks that represent greater risk to the project finish date and cost.
This process shall allow us to check for tasks that are behind schedule is to see those
tasks for which the actual progress lags behind the planned progress, which may
cause the project end date to slip. By set a baseline for the project, we can see
how tasks progress over time and see whether their start and finish
dates are slipping. Shall this happen the project team can carry out the “catch up”
plan e.g. to increase man power or lengthen the working time to catch up with the
completion time.
Identify the budget risk
Identify the budget risk is the process to view and handle those tasks that are over
budget, likely to become over budget, or likely to cause the entire project to go over
budget. Using project management software e.g. Primavera, tie it budget with the
project plan. By doing this we can monitor the actual cost versus plan, find out shall
the cost are over budget, view cost variances and analyse the project cost.
Question 2- Pg 13
To review the cost can be done in many ways either to check the overall status of
project costs at every task, resource, assignment, or for each project or monthly cost.
Increases on cost may put the overall project budget at risk.
Figure 10: Simplifies Tracking Resources and Costs.
By applying a cost over budget filter, we can quickly trigger on cost overruns for each
tasks, assignments or monthly budget. We can also, view the cost variances to
compare the baseline costs for tasks, resources, or assignments with actual costs.
Figure 11: Once your projects are underway, Primavera enables you to store actual
quantity and cost data per update period so you can compare historical information to
the current period using resource profiles and reports.
Question 2- Pg 14
Identify the resource risk and defined risk
Identify risk resources is the process to identify whether a project may be at risk shall
they are using highly specialized resources that are/only available through limited
suppliers, if the resources are not being used efficiently, or if they are working on
multiple projects.
In some risk management software they allows to identify specialized skills to see
which resources have skills that might be difficult to replace, identify materials which
can delay the project if the supplier is unable to deliver on time, check for over
allocated or under allocated resources to review each resource's total amount of work
to ensure that neither too much nor too little work has been assigned and identify
resource allocation problems across multiple projects to see which resources are
working at or over their maximum availability. Resource sheet shall give a better
overview of resource allocated will and also to avoid doing mistakes.
Define risks is the process after we identify the potential risks, project management
software e.g. Primavera can easily analyse the impact of risks if they occur.
Quantify risk – using PERT
Project management software e.g. Primavera can be use to analyse risks using
quantitative method by quantifying effects of risk events on the project such as
determining probability of achieving cost and time objectives, calculating contingency
reserves, identifying trends in quantitative analysis and ranking risks by estimated
cost.
Primavera implements qualitative risk analysis methodology, quantitative risk

analysis that gives the project manager chances to see how project schedule get
affected if certain risks occur. This shall help project managers to mitigate risk factors
and manage their projects better.
Quantitative Risk Analysis technique can be implemented by using PERT (Program

Evaluation and Review Technique). PERT chart is the best way to break-down a
project structure and chart the various steps needed to complete a project and predict
the earliest possible completion date. Work breakdown structure can be used to
break the affected activities.
PERT can perform to analyze the estimation of duration task by taking into account
the expected task duration is calculated as the weighted average of the most
optimistic, the most pessimistic, and the most likely time estimates. PERT Chart
Question 2- Pg 15
contains a complete Critical Path Scheduling that calculates critical and non-critical
tasks. Using PERT chart we identify which tasks gave critical impact on the schedule.
Primavera has views that help users to enter data for PERT analysis: separate views
for optimistic, expected, and pessimistic duration, as well as a PERT entry sheet. The
most powerful view is the last one as it allows the user to enter and see all durations
together.
To assign the probability for each risk, determine how likely risk it is to occur,
Primavera PERT analysis tools to see how likely able to hit the dates. If the tasks
durations in the project plan are differ significantly from those in the PERT analysis,
then the tasks are at higher risk.
Figure 12: Display the PERT chart grouped by summary tasks
PERT chart schedules tasks based on the information you enter such as the duration,
dependencies and constraints. Use the calendar to define workdays, non workdays
and work hours per day. PERT chart automatically calculates the critical path so that
we can see which tasks have the most impact on project schedule.
Question 2- Pg 16
Quantify Risk- Monte Carlo Simulations
Monte Carlo simulations can be used as an alternative to overcome the challenges,

associated with the PERT method. It is a mathematical method used on risk analysis
in many areas and is used to approximate the distribution of potential results based
on probabilistic inputs.
Each simulation is generated by randomly pulling a sample value for each input
variable from its defined probability distribution, e.g. uniform, normal, lognormal,
triangular, beta and others. These input sample values are then used to calculate the
results such as total project duration, total project cost and project finish time.
Monte Carlo simulations have been proven to be an effective methodology for the
analysis of project schedule with uncertainties; calculate the critical path and slack
values. It’s allowing user to see all the possible outcomes of the decisions and assess
the impact of risk, allowing for better decision. Monte Carlo computerized
mathematical simulation is a technique that allows people to calculate risk in
quantitative analysis and in making a decision.
It’s verified project logic and design. Identify common scheduling pitfalls that may
result in misleading schedule or risk analysis results. To verify whether the plan is
practical based on identified risk events, to pin point likelihood of finishing project on-
time and on-budget, to identify key risk drivers based on criticality, risk sensitivity
and/or duration sensitivity, to reformulate project logic / sequencing based on risk
analysis results, to identify minimum, most likely, and maximum task durations based
on three point estimate.
It’s model both qualitatively and quantitatively positive and negative risk events
(threats and opportunities). Can design a mitigation plan for possible risk events and
give report on project likelihood of completing on-time and on-budget based on both
pre-mitigated and post-mitigated schedule.
Question 2- Pg 17
Figure 13: Risk Histogram - Sample Monte Carlo Simulation Results.
Plan for risk
When risks are identified and quantified, the next process is to plan for risk. Risk
planning can take a lot of time and effort therefore users might only plan for the high-
priority risks or the medium- to high-priority risks. Planning involves identifying
triggers for each risk and also identifying proactive, contingency, or mitigation plans
for each one of them.
Start with developing a list of risk events and mitigation strategies to monitor
throughout execution of the project. To help interested parties correct expectations
regarding project deliverables. Determine confidence levels regarding project cost
and schedule success. Determine confidence levels, P-schedules and quick
determination of contingency. Identify key risk drivers. Find out what task or risk event
is causing your schedule to not perform as expected. Determine the combined
probability of achieving both given budgets and completion dates together. “what if…”
analysis by interactively varying cost and schedule thresholds to reveal the resultant
chance of success. Compare scenarios and determine the cost/benefit ratio of
selected mitigation plans.
Question 2- Pg 18
Figure 14: Sampling of @Risk Result – Tornado chart able to identify the Risk.
Monitor and Manage Risks
Once the risk management plan is in place, the next task is to ensure the project
team to follow them. To take any actions necessary according to the proactive,
mitigation and contingency plans towards successful of project.
As conclusion, project management software enable project risk management by

identify the risk, quantify risk, plan for risk efficiently then monitor and manage the
risk. The best project-management tool may not come in single software, it depends
primarily on our needs. Did we need a tool that will allow our internal team detailed
control over tasks and workflow, or something that will allow external stakeholders to
easily get in and know what's going on?
Risk Management Software can help users to make decisions on risk management
by showing the most critical risks and how they would occur. By using techniques
such as Monte Carlo analysis, we can also determine the likely cost of each particular
risk. The most important is how to deal with them.
Question 2- Pg 19
Question 3
Your company has asked you to determine the financial risks of manufacturing 6,000
units of a product rather than purchasing them from a vendor at $66.50 per unit. The
production line will handle exactly 6,000 units and requires a one-time setup cost of
$50,000. The production cost is $60/unit.
Your manufacturing personnel inform you that some of the units manufatured by them
may be
defective, as shown below:
% defective 0 1 2 3 4
Probability of occurrence 0.40 0.30 0.20 0.06 0.04
On the other hand, the vendor has the following quality assurance:
% defective 0 1 2
Probability of occurrence 0.90 0.085 0.015
Defective items must be removed and replaced at a cost of $145/defective unit.
Construct a payoff table, and using the expected-value model, determine the financial
risk and whether the make or buy option is best.
[14 marks]
Question 3 – Pg 1
Answer 3:
The cost of replacing the expected number defectiveness (assuming that this process
does not produce further defects) is;
% Defective 0 1 2 3 4
Probability of occurrence (%) 40 30 20 6 4
Expected Cost (%) 0 0.30 0.40 0.18 0.16
Giving1.04 per 100 units per RM1 of replacement cost.

Hence, the total cost is 1.04 x 6000/100 x 145 = 9,048.00
If the items are purchased from the vendor, the cost of replacing the expected
number of defectives is;
% Defective 0 1 2
Probability of occurrence (%) 0.90 0.085 0.015
Expected Cost (%) 0 0.085 0.030
Giving 0.115 per 100 units per RM1 of replacement cost.

Hence, the total cost is 0.115 x 6000/100 x 145 = 1,000.50
The payoff table shall be;

Option Setup cost Purchase/Production cost Defect Cost Total Cost
Buy Nil 399,000.00 9,048.00 408,048.00
Make 50,000.00 360,000.00 1,000.50 411,000.50
It is clear that the buy option is more economical.
Question 3 – Pg 2
Question 4
Describe the salient aspects of project risk management processes adopted in

the PMBOK of the PMI.
[14 marks]
Answer 4
The salient aspects of project risk management processes adopted from the
PMBOK of the PMI are inclusive of risk management planning, identification,
analysis, response the probability and impact of positive events, and
decrease the probability and impact of negative events in the project.
These processes interact with each other and with the processes in the other
Knowledge Areas. Each process can involve effort from one or more persons
based on the needs of the project. Each process occurs at least once in every
project and occurs in one or more phases, if the project is divided into phases.
Project risk is always in the future. Risk is an uncertain event or condition that if it
occurs, has an effect on at least one project objective. Objectives can include
scope, schedule, cost, and quality. A cause may be a requirement, assumption,
constraint, or condition that creates the possibility of negative outcomes. For
example, causes could include the requirement of an environmental permit to do
work, or having limited personnel assigned to design the project.
The risk event is that the permitting agency may take longer than planned to
issue a permit, or in the case of an opportunity, limited design personnel available
and assigned may still be able to get the job done on time, thereby accomplishing
work with less resource utilization. If either of these uncertain events occurs,
there may be an impact on the project costs, schedule, or performance. Risk
conditions could include aspects of the project’s or organization’s environment
that may contribute to project risk, such as immature project management
practices, lack of integrated management systems, concurrent multiple projects,
or dependency on external participants who cannot be controlled.
Project risk has its origins in the uncertainty present in all projects. Known risks
are those that have identified and analyzed, making it possible to plan responses
for those risks. Specific unknown risks cannot be managed proactively, which
suggests that the project team should create a contingency plan. A project risk
that has occurred can also be considered an issue.
Question 4 – Pg 1
Figure 1: Project Risk Management Overview - Summary of the PMBOK six Project Risk
Management Processes
The following are six major Project Risk Management processes as spell out in
the PMBOK;
1) Plan Risk Management – The process of defining how to conduct risk

management activities for a project. Careful and explicit planning enhances
the possibility of success of the five other risk management processes.
Risk Management Planning is the process of deciding how to approach and

conduct the risk management activities for a project and the planning of risk
management processes is important to ensure that the level, type, and
visibility of risk management are commensurate with both the risk and
importance of the project to the organization, to provide sufficient resources
and time for risk management activities, and to establish an agreed-upon
basis for evaluating risks.
Question 4 – Pg 2
The Risk Management Planning process should be completed early during

project planning, since it is crucial to successfully performing the other five
risk management salient processes.
The result of Risk Management Planning is actually a Risk Management

Plan. The risk management plan identifies and establishes the activities of
risk management for the project in the project plan.
Figure 2: Plan Risk Management; Inputs, Tools & Techniques and Outputs.
2) Identify Risks – The process of determining which risks may affect the
project documenting their characteristics.
Risk identification involves identifying potential risks in a project. Risk

Identification produces a deliverable — the project Risk Register – where
risks are identified that may affect the project’s ability to achieve its
objectives.
Risk Identification documents which risks might affect the project and
documents their characteristics. The Risk Register is subsequently amended
with the results from qualitative risk analysis and risk response planning, and
is reviewed and updated throughout the project.
Participants in risk identification activities can include the following, where

appropriate; project manager, project team members, risk management team
(if assigned), subject matter experts both from the project and from outside
the project team, customers, end users, other project managers,
stakeholders, and risk management experts. While these personnel are often
key participants for risk identification, all project personnel should also be
encouraged to identify risks.
Risk identification is an iterative process because new risks may become

known as the project progresses through its life cycle and previously-
identified risks may drop out. The frequency of iteration and who participates
in each cycle will vary from case to case. The project team should be
Question 4 – Pg 3
involved in the process so that they can develop and maintain a sense of
ownership of, and responsibility for, the risks and associated risk response
actions. Stakeholders outside the project team may provide additional
objective information. The Risk Identification process is a requirement for the
Qualitative Risk Analysis process.
The assigned team members identify the potential risks (threats and
opportunities), using:
• The risk breakdown structure, suitably tailored to the project.
• Risk list.
• Their own knowledge of the project or similar projects.
• Consultation with others who have significant knowledge of the project

or its environment.
• Consultation with others who have significant knowledge of similar

projects.
• Other tools and techniques such as those provided in Chapter 11,

PMBOK.
It is important to specify the risk correctly e.g. a risk has a cause and, if it
occurs, an impact on a project objective. The risk statement structure that
should be followed in specifying identified risks is: Because of the (cause,
condition that is true), (a risk) may occur, leading to an impact (at this stage
unanalyzed) on XX objective where XX is cost, time, scope and or quality.
This structure helps to specify the risk correctly. As an example of the use of
the risk statement structure, the fact that the bridge is built over water is not a
risk, it is a cause. The risk may be unknown sub-surface conditions, which if
they occur may lead to re-design of the supports and pilings. Mitigation could
involve coring at the support location or soil investigation to determine type of
piling to be used and engineering analysis based on the findings, to reduce
the probability of unknown conditions.
In risk identification, sometimes there is a temptation to dismiss a risk

because “we cannot do anything about it anyway”. This argument does not
change the risk into a non-risk, simply because there is no viable mitigation
strategy. The risk that cannot be mitigated may have an effect on the project
and can be calibrated in qualitative and quantitative analysis. It is just not
possible to handle this risk, but it is still a risk. Also, some of these risks may
be affected by risk handling if people think carefully about it, for instance,
Question 4 – Pg 4
political risk may be influenced by public outreach and information

campaigns.
The team considers:
• Threats — a risk that will give a negative impact on a project objective if it

occurs (what might happen to jeopardize the project’s ability to achieve its
objectives).
• Opportunities — a risk that will give a positive impact on a project

objective if it occurs (what might happen to improve the project’s ability to
achieve its objectives).
• Triggers — symptoms and warning signs that indicate whether a risk is

becoming a near-certain event and a contingency plan/response plan
should be implemented.
The team should also consider:
• Residual risks - Risks that remain even after developing responses to the
project's original risks. Example: You identify delays caused by hazardous
waste issues as one of your primary risks. If you are able to develop a
response that mitigates only problems caused by underground fuel tanks,
you may still have other hazardous waste risks. Our goal is to reduce
residual risks to an acceptable level.
• Secondary risks – Secondary risks are caused by responses to the

project's original risks. For example, if you decide to hire outside help as a
way of mitigating a project risk, you now have additional concerns that
arise as a result of using the external vendor. The timeliness of their work
and potential contractual disputes are risks you did not have before you
decided to use their services.
• Risk interaction - The combined effect of two or more risks occurring

simultaneously is greater than the sum of the individual effects of each free
standing risk. For instance, Federal budget cuts may increase delays in
Federal Highway Administration permits at the same time federal
programming dollars become scarcer.
Question 4 – Pg 5
Figure 3: Identify Risk; Inputs, Tools & Techniques and Outputs.
3) Perform Qualitative Risk Analysis – Includes methods for prioritizing the

identified risks for further action, such as Quantitative Risk Analysis or Risk
Response Planning. Organizations can improve the project’s performance
effectively by focusing on high-priority risks.
Qualitative Risk Analysis assesses the priority of identified risks using their
probability of occurring, the corresponding impact on project objectives if the
risks do occur, as well as other factors such as the time frame and risk
tolerance of the project constraints of cost, schedule, scope, quality, safety
and sustainability.
Sometimes experts or functional units assess the risks in their respective

fields and share these assessments with the team within the company.
Across the same project the definitions that will be used for levels of
probability and impact should be the same.
The organization’s management, project customer or sponsor has an

important role in the Qualitative Risk Analysis process.
• The project sponsor defines for the risk analysis lead and team the levels
of impact on time, cost, scope and quality that would qualify a risk as
having a very low, low, moderate, high or very high impact on each
objective.
• The project sponsor determines the combinations of probability and impact
that make a risk low, moderate and high priority for each objective in light
of the definitions just mentioned.
Once the definitions are in place, team members assess the identified risks’
probability and impact and then put them into high, moderate, and low risk
Question 4 – Pg 6
categories for each project objective (time, cost, scope, quality). They rank
risks by degrees of probability and impact, using the definitions in place, and
include their assessment rationale. This is called “Risk Ranking”.
Team members revisit qualitative risk analysis during the project’s lifecycle.
When the team repeats qualitative analysis for individual risks, trends may
emerge in the results. These trends can indicate the need for more or less
risk management action on particular risks, or whether a risk mitigation plan
is working.
Figure 4: Perform Qualitative Risk Analysis; Inputs, Tools & Techniques

and Outputs.
4) Perform Quantitative Risk Analysis – Is a way of numerically estimating

the probability that a project will meet its cost and time objectives.
Quantitative analysis is based on a simultaneous evaluation of the impact of
all identified and quantified risks. The result is a probability distribution of the
project’s cost and completion date based on the identified risks in the project.
Quantitative risk analysis involves statistical techniques, primarily Monte

Carlo simulation, that are most widely and easily used with specialised
software. Quantitative risk analysis starts with the model of the project, either
its project schedule or its cost estimate depending on the objective. The
degree of uncertainty in each schedule activity and each line-item cost
element is represented by a probability distribution.
The probability distribution is usually specified by determining the optimistic,

the most likely and the pessimistic values for the activity or cost element –
this is typically called the “3-point estimate.” The three points are estimated
during an interview with subject matter experts who usually focus on the
schedule or cost elements one at a time. The risks that lead to the three
points are recorded for the quantitative risk analysis report and for risk
response planning. For each activity or cost element a probability distribution
Question 4 – Pg 7
type is chosen that best represents the risks discussed in the interview.
Typical distributions usually include the triangular, beta, normal and uniform.
A specialized Monte Carlo simulation software program runs (iterates) the

project schedule or cost estimate many times, drawing duration or cost
values for each iteration at random from the probability distribution derived
from the 3-point estimates and probability distribution types selected for each
element. The Monte Carlo software develops from the results of the
simulation a probability distribution of possible completion dates and project
costs. From this distribution it is possible to answer such questions as:
• How likely is the current plan to come in on schedule or on budget?

• How much contingency reserve of time or money is needed to provide
the agency with a sufficient degree of certainty?
• Using sensitivity analysis, which activities or line-item cost elements
contribute the most to the possibility of overrunning schedule or cost
targets?
The Department does not require quantitative analysis for projects; however,
the PDT or the District may determine that a project will need to undergo an
in-depth quantitative risk analysis based on the cost, complexity or high
profile of the project.
Figure 5: Perform Quantitative Risk Analysis; Inputs, Tools & Techniques

and Outputs.
5) Plan Risk Responses – The process of developing options and actions to

enhance opportunities and to reduce threats to project objectives.
Risk Response Planning is the process of developing options, and

determining actions to enhance opportunities and reduce threats to the
project’s objectives. It focuses on the high-risk items evaluated in the
Question 4 – Pg 8
qualitative and/or quantitative risk analysis. In Risk Response Planning

parties are identified and assigned to take responsibility for each risk
response. This process ensures that each risk requiring a response has an
owner monitoring the responses, although a different party may be
responsible for implementing the risk handling action itself.
The project manager and the PDT identify which strategy is best for each
risk, and then design specific action(s) to implement that strategy.
Strategies for Negative Risks or Threats include:
Avoid. Risk avoidance involves changing the project plan to eliminate the
risk or to protect the project objectives (time, cost, scope, quality) from its
impact. The team might achieve this by changing scope, adding time, or
adding resources (thus relaxing the so-called “triple constraint”).
These changes may require a Programming Change Request (PCR). Some

negative risks (threats) that arise early in the project can be avoided by
clarifying requirements, obtaining information, improving communication, or
acquiring expertise.
Transfer. Risk transference requires shifting the negative impact of a

threat, along with ownership of the response, to a third party. An example
would be the team transfers the financial impact of risk by contracting out
some aspect of the work.
Transference reduces the risk only if the contractor is more capable of taking
steps to reduce the risk and does so. Risk transference nearly always
involves payment of a risk premium to the party taking on the risk.
Transference tools can be quite diverse and include, but are not limited to the
use of: insurance, performance bonds, warranties, guarantees,
incentive/disincentive clauses, A+B Contracts, etc.
Mitigate. Risk mitigation implies a reduction in the probability and/or

impact of an adverse risk event to an acceptable threshold. Taking early
action to reduce the probability and/or impact of a risk is often more effective
than trying to repair the damage after the risk has occurred.
Risk mitigation may take resources or time and hence may represent a
tradeoff of one objective for another. However, it may still be preferable to
going forward with an unmitigated risk.
Monitoring the deliverables closely, increasing the number of parallel

activities in the schedule, early involvement of regulatory agencies in the
Question 4 – Pg 9
project, early and continuous outreach to communities/advocacy groups,

implementing value engineering, performing corridor studies, adopting less
complex processes, conducting more tests, or choosing a more stable
supplier are examples of mitigation actions.
Strategies for Positive Risks or Opportunities include:
Exploit. The organization wishes to ensure that the opportunity is realized.

This strategy seeks to eliminate the uncertainty associated with a particular
upside risk by making the opportunity definitely happen. Examples include
securing talented resources that may become available for the project.
Share. Allocating ownership to a third party who is best able to capture the
opportunity for the benefit of the project. Examples include: forming risk-
sharing partnerships, teams, working with elected officials, special-purpose
companies, joint ventures, etc.
Enhance. This strategy modifies the size of an opportunity by increasing

probability and/or positive impacts, and by identifying and maximizing key
drivers of these positive-impact risks. Seeking to facilitate or strengthen the
cause of the opportunity, and proactively targeting and reinforcing its trigger
conditions, might increase probability. Impact drivers can also be targeted,
seeking to increase the project’s susceptibility to the opportunity.
Strategy for both Threats and Opportunities:
Acceptance. A strategy that is adopted because it is either not possible to

eliminate that risk from a project or the cost in time or money of the response
is not warranted by the importance of the risk. When the project manager and
the project team decide to accept a certain risk(s), they do not need to
change the project plan to deal with that certain risk, or identify any response
strategy other than agreeing to address the risk if and when it occurs. A
workaround plan may be developed for that eventuality.
There are two types of acceptance strategy:
a) Active acceptance. The most common active acceptance strategy

is to establish a contingency reserve, including amounts of time,
money, or resources to handle the threat or opportunity.
Question 4 – Pg 10
i. Contingency Plan:
Some responses are designed for use only if certain events occur. In
this case, a response plan, also known as “Contingency Plan”, is
developed by the project team that will only be executed under certain
predefined conditions commonly called “triggers.”
b) Passive acceptance. Requires no action leaving the project team to deal

with the threats or opportunities as they occur.
i. Workaround:
Workaround is distinguished from contingency plan in that a
workaround is a recovery plan that is implemented if the event occurs,
whereas a contingency plan is to be implemented if a trigger event
indicates that the risk is very likely to occur.
As with risk identification process, the team should also consider residual
risks, secondary risks, and risk interaction in the risk response planning
process.
Figure 6: Plan Risk Responses; Inputs, Tools & Techniques

and Outputs.
6) Monitor and Control Risks – The process of implementing risk response

plans, tracking identified risks, monitoring residual risks, identifying new risks,
and evaluating risk process effectiveness throughout the project.
Risk monitoring and control keeps track of the identified risks, residual risks,
and new risks. It also monitors the execution of planned strategies on the
identified risks and evaluates their effectiveness.
Risk monitoring and control continues for the life of the project. The list of
project risks changes as the project matures, new risks develop, or
anticipated risks disappear.
Typically during project execution there should be regularly held risk

meetings during which all or a part of the Risk Register is reviewed for the
effectiveness of their handling and new risks are discussed and assigned
owners. Periodic project risk reviews repeat the process of identification,
analysis, and response planning. The project manager ensures that project
risk is an agenda item at all PDT meetings. Risk ratings and prioritization
commonly change during the project lifecycle.
If an unanticipated risk emerges, or a risk’s impact is greater than expected,

the planned response may not be adequate. The project manager and the
PDT must perform additional response planning to control the risk.
Risk control involves:
Choosing alternative response strategies

Implementing a contingency plan
Taking corrective actions
Re-planning the project, as applicable
The individual or a group assigned to each risk (risk owner) reports periodically to
the project manager and the risk team leader on the status of the risk and the
effectiveness of the response plan. The risk owner also reports on any
unanticipated effects, and any mid-course correction that the PDT must consider
in order to mitigate the risk.
Figure 7: Monitor and Control Risks; Inputs, Tools & Techniques

and Outputs.
Question 5
a. Discuss the appropriateness, or otherwise, of the following risk measures:
i) Likelihood of Loss times Impact of Loss

ii) The Expected Monetary Value
b. Identify the various risk exposures in a large project that can be effectively
managed using insurance.
c. You have $1,000,000 worth of equipment at the job site and wish to minimise your
risk of direct property damage by taking out an insurance policy. The insurance
company provides you with their statistical data as shown below:
Property Damage Type Probability (%) Loss Amount in $

Total 0.02 1,000,000
Medium 0.08 400,000
Low 0.10 200,000
No damage 99.8 0
Assuming that the insurance company adds on $300 for handling and profit and
usesexpected value to calculate premiums, calculate:
i) the exected loss and its variance;
ii) the premium the insurer is likely to charge for:
- full cover against any loss

- cover against losses in excess of $200,000
[14 marks]
[TOTAL: 70 MARKS]
Question 5 – Pg 1
Answer 5:
a. i) Likelihood of Loss times Impact of Loss
Likelihood means the chance that a particular risk will occur. It can be expressed as
either a probability for a single event or condition, or a frequency of occurrence for
repeat events. Mean while "risk" or the loss or treat refers to an uncertain adverse
event or condition that if it occurs will result in unfavourable outcomes such as injury,
damage to the environment, delay, or economic loss.
Probability/likelihood of occurrence is the likelihood of the event to occur and in Risk

Management, it is to determine the probability/likelihood of a risk event occurring and
it treat where is in this case time loss is the consequence/impact.
Defining likelihood and consequence
Standard methods exist for defining likelihood and consequence scales which apply
to mostRio Tinto risk analyses. The person leading the risk analysis must either:
• confirm applicability of the standard method for the particular application before
commencing the risk analysis, or
• define and justify alternative scales to be used for a particular analysis.
Typically both likelihood and consequence scales are defined with three, four or five
points, usually using the same number of points for likelihood and for consequence
(eg 3x3, 4x4 or 5x5). Four point scales are appropriate for most Rio Tinto risk
analyses, since three point scales may not be sufficiently rigorous to allow adequate
discrimination between different classes of risks, and five point scales may be overly
complex. However 4x4 scales are not mandatory.
However many scale points are selected for a particular risk analysis, it is essential
that their meanings are defined prior to commencing the analysis. An example four
point scale for likelihood is presented in the table below, defining probability values
for single risk events, and time based frequency values for repeated events. Other
types of likelihood definitions may also be required (see the Risk portal for details). In
some circumstances it may be appropriate to define likelihood as a combination of
probability and exposure.
Question 5 – Pg 2
Example definitions of likelihood
Example definition scales for the main types of economic consequences are
presented in the Risk portal, against which each identified risk can be assessed.
Since risk analyses must address both threats and opportunities, it is necessary to
define both downside and upside economic consequence scales. Threats have
unfavourable economic consequences (increased capital expenditure or operating
cost, delayed schedule or production, delayed or lost revenue); opportunities have
favourable economic consequences. Economic consequences are scaled to support
risk analyses at different levels in the organisation, since risk acceptance thresholds
for smaller projects or business units have lower absolute values than the thresholds
for larger projects or business units.
Example definition scales for non economic consequences are also presented on the
Risk portal, against which identified risks can be assessed. Definition of upper limits
for unfavourable non economic consequences does not imply that they are
acceptable to Rio Tinto, or Rio Tinto Risk analysis and management guidance 5 that
a consequence at this level would be tolerated under any circumstances. It merely
recognises that such levels of consequence are theoretically possible as upper limits.
Risk acceptance thresholds
Clear and well defined risk acceptance thresholds are required in order to define the
level of risk that can be tolerated. Risk acceptance thresholds are based on defined
scales for likelihood and consequences. Risks are then assessed and classified using
a risk determination matrix, using the same matrix for both threats and opportunities.
An example 4x4 matrix is given here, where both likelihood and consequence are
assessed against four point scales, and the risk acceptance threshold is shown in this
diagram as the white zone (occupied by class II risks).
Question 5 – Pg 3
The example matrix has asymmetric zones which give more weight to consequence
than to likelihood. The precise placement of zone boundaries reflects the risk
acceptance threshold.
Where a risk has more than one type of consequence, its position in the matrix is
determined by its highest scoring consequence.The positi on of each risk in the
matrix determines its classification into one of classes I, II, III or IV, as illustrated in
the sample matrix. These classes indicate where the risk is positioned in relation to
the risk acceptance threshold (see above).
Example risk determination matrix
High consequence low likelihood risks
Special attention needs to be paid to any risks assessed as having very high negative
consequence and very low likelihood. These may include risks where consequences
include multiple fatalities, a massive environmental incident, or a major plant or mine
failure resulting in severe interruption to business. They may also include aggregation
risks arising from a number of related risks.
Where such risks are identified, they should be noted in the Risk register as special
cases, and treated separately from the standard risk analysis process, with further
urgent evaluation.
Question 5 – Pg 4
Answer 5:
a. ii) The Expected Monetary Value
Business or project decisions vary with situations, which in-turn are fraught with
threats and opportunities. Calculating the Expected Monetary Value of each possible
decision path is a way to quantify each decision in monetary terms. Calculating
Expected Monetary Value by using Decision Trees is a recommended Tool and
Technique for Quantitative Risk Analysis.
The following is Decision Trees example that'll illustrate the use of Decision Tree
Analysis in Project Risk Management.
Steps to Use Decision Trees Analysis
To use Decision Tree Analysis in Project Risk Management, you need to:
1. Document a decision in a decision tree.

2. Assign a probability of occurrence for the risk pertaining to that decision.
3. Assign monetary value of the impact of the risk when it occurs.
4. Compute the Expected Monetary Value for each decision path.
The simplest way to understand decision trees is by looking at a Decision Trees

example in Project Risk Management.
Decision Trees Example - Scenario
Suppose your organization is using a legacy software. Some influential stakeholders

believe that by upgrading this software your organization can save millions, while
others feel that staying with the legacy software is the safest option, even though it is
not meeting the current company needs. The stakeholders supporting the upgrade of
the software are further split into two factions: those that support buying the new
software and those that support building the new software in-house. Confusion reigns
in the meeting room with stakeholders pointing out negative risks for each option!!!
By exploring all possibilities and consequences, you can quantify the decisions and
convince stakeholders. This is known as Decision Tree Analysis. The following
Decision Trees example uses Decision Tree Analysis to help make an informed
Project Risk Management decision. The computations involve calculating the
Expected Monetary Value. Read on to learn more about Decision Trees and Decision
Tree Analysis.
Question 5 – Pg 5
Decision Trees Example - Building the Decision Tree to Use in Decision Tree
Analysis
In this scenario, you can either:
• Build the new software: To build the new software, the associated cost is
$500,000.
• Buy the new software: To buy the new software, the associated cost is
$750,000.
• Stay with the legacy software: If the company decides to stay with the legacy
software, the associated cost is mainly maintenance and will amount to
$100,000.
Looking at the options listed above, you can start building the decision trees as
shown in the diagram. By looking at this information, the lobby for staying with the
legacy software would have the strongest case. But, let’s see how it pans out. Read
on.
The Buy the New Software and Build the New Software options will lead to either a
successful deployment or an unsuccessful one. If the deployment is successful then
the impact is zero, because the risk will not have materialized. However, if the
deployment is unsuccessful, then the risk will materialize and the impact is $2 million.
The Stay with the Legacy Software option will lead to only one impact, which is $2
million, because the legacy software is not currently meeting the needs of the
Question 5 – Pg 6
company. Nor, will it meet the needs should there be growth. In this example, we
have assumed that the company will have growth.
In this example, Decision Trees analysis will be used to make the project risk
management decision. The next step is to compute the Expected Monetary Value for
each path in the Decision Trees. Let's see how this helps in this Decision Trees
example.
Decision Trees Example - Calculating Expected Monetary Value for each

Decision Tree Path
The diagram depicts the decision tree. Now, you can calculate the Expected
Monetary Value for each decision. The Expected Monetary Value associated with
each risk is calculated by multiplying the probability of the risk with the impact. By
doing this, we get the following:
• Build the new software: $ 2,000,000 * 0.4 = $ 800,000

• Buy the new software: $ 2,000,000 * 0.05 = $ 100,000
• Staying with the legacy software: $ 2,000,000 * 1 = $ 2,000,000
Now, add the setup costs to each Expected Monetary Value:
Question 5 – Pg 7
• Build the new software: $ 500,000 + $ 800,000 = $ 1,300,000

• Buy the new software: $ 750,000 + $ 100,000 = $ 850,000
• Staying with the legacy software: $ 100,000 + $ 2,000,000 = $ 2,100,000
View the image above, to see how all the figures above look like in a Decision Tree
after conducting a Decision Tree Analysis. Now let's make the decision in this
Decision Trees example. This will illustrate the role of Decision Trees in Project Risk
Management.
Decision Trees Example - Making the Decision
Looking at the Expected Monetary Values computed in this Decision Trees example,
you can see that buying the new software is actually the most cost efficient option,
even though its initial setup cost is the highest. Staying with the legacy software is by
far the most expensive option.
When you conduct a SWOT Analysis to determine whether a business idea is worth
pursuing, there is no quantified data to support your decision. Decision Trees and
Decision tree analysis help you quantify the data, which is then useful in convincing
stakeholders. It is a critical part in Project Risk Management.
Question 5 – Pg 8
Answer 5:
b) Identify the various risk exposures in a large project that can be effectively
managed using insurance.
A successful large construction project is the result of meticulous planning, the use of
sophisticated machinery and tools and the coming together of several skilled workers.
With so many factors at play, the site is also often fertile ground for mishaps that can
be quite expensive if the contractor is not insured. So, here is a look at the various
issues that a construction company may be faced with if they do not have the
proper insurance for construction project and the different policies that can help a
company to mitigate the various risks associated with construction projects.
1. Contractor All Risk (CAR):
Risk involved in the businesses face that are inherent in construction projects, from
project inception through completion and beyond which is physical lost or damage to
the properties. Normally insurance will cover 2 types:
i. Construction all risk (CAR) which covers all types of construction risks, lost
of raw material and includes works brought on-site as part of contracts as
well as temporary works erected or constructed on-site.
ii. Equipment and machinery all risk which covers plant and machinery
construction risks and can be extended to include third-party liability related
to work conducted on contract site.
Most insurance providers have established that contractors are susceptible to the
risk of material damage and there are several policies in the market to mitigate the
losses that may result from such an occurrence. The coverage may not only include
the material used in the construction project but also cover the machinery used to
complete the job.
The policies that protect a contractor from such a risk include the contractor plant
and machinery coverage and also the all risk policy. A contractor who is not insured
against material and machinery damage may have to incur heavy losses in case of
situations that destroy the material and the tools and machinery used on the
construction site.
Question 5 – Pg 9
2. Erection All Risk;
Policies such as Civil engineering completed risk insurance and Erection All risk
policies will protect a construction company against damages resulting from factors
such as floods, fire, earthquakes, hurricane, strikes, civil unrest, riots, theft and
vandalism etc.
This type of insurance for construction project offers more comprehensive coverage
and is highly recommended for projects that entail large investments form the
construction company.
3. Risk to 3rd party either properties or body illness:
Normally this can be covered under the CAR policy but provided it stated in the
clauses. It covers the damage to 3rd parties of properties belongings and body
illness due to the erection of the project.
The contractor may be liable for all third party claims resulting from personal injury
as well as property damage. In order to avail coverage for such liabilities a
construction company should purchase insurance policies such as the public liability
policy, worker’s compensation, and other forms of employer liability policies.
third party liability coverage insurance policy. This insures against accidental bodily
injury or illness and loss of life to third parties as well as accidental loss of, or
damage to property belonging to third parties, caused by an accident at the
construction site.
4. Professional Indemnity Insurance;
Professional Indemnity Insurance (PI) is typically obtained by business professionals

who provide advice to their customers. In construction works normally shall involves
architecture, consulting engineers, quantity surveyor and building professions.
It’s provides cover for claims brought against the policyholder due to their
professional negligence.
There are three types of PI wording as below;
i. Negligent act, negligent error or negligent omission

ii. Negligent act, error or omission
iii. Civil liability
5. Workmen Compensation;
It is to protect the company from related to worker injury in work place either fatal or
not, body illness due to disease. By law, a contractor also required to have
employee liability insurance so the safety of all the workers and employees is
assured. The contractor will need to provide safety equipment including safe pants,
helmets, proper tools and equipment to ensure that the employees are working in
conditions which can be considered safe under the terms of such a policy.
6. loss of profits
In some cases, a contractor may be faced with the very real possibility of loss of
profits because the project could not be completed by the deadline. For the
contractor this would mean loss of all the money that was invested in the labor and
machinery and in many cases all the material used for the project. Fortunately, there
is a policy that can protect you from such a situation; this type of insurance for
construction project is known as advance loss of profits policy and it protects you
against the loss of anticipated income/profit from a project.
Answer 5:
(c) Using expected value model:
Handling and profit = RM300.00
i) The expected loss and its variance;
Property Probability (%) Loss amount Probability loss

damage type (RM) amount (RM)
Total 0.0002 1,000,000 200
Medium 0.0008 400,000 320
Low 0.0010 200,000 200
No damage 0.9980 0 0
Thus expected value loss = E(X) = ai Pr(X = ai)
= (200 + 320 + 200 + 0)/1 = RM 720.00
Mean
=(1,000,000 + 400,000 + 200,000 + 0)/4 = 400,000
Variance:
Var (X) = E( (X - µ)2) =

2
= ∑(a i - µ)2 Pr(X = a i)
= (1,000,000-400,000)2 x 0.0002 + (400,000-400,000)2 x 0.0008 + (200,000-

400,000)2 x 0.001 + (0-400,000)2 x 0.998
= 159,792,000,000
ii) the premium the insurer is likely to charge for:
- full cover against any loss

- cover against losses in excess of $200,000
Likely premium charge:
Full cover against any loss:
= RM720 + RM300 = RM 1,020.00
Therefore, covering against losses in excess of RM200,000.
= (200 + 320) ÷ (0.999) = 520/0.999 = RM 520.52
= 520.52 + RM300 = RM 820.52
Part B
Question 1
a. Describe how you would use the Monte Carlo Simulation Technique for project risk
management purposes.
b. A construction firm has the following abridged balance sheet:
RM RM
‘000,000 ‘000,000
Assets
Net fixed assets 70
Cash and Current assets 30
Total assets 100
Financed By
7% Debentures 30
Equity capital 60
Current liabilities 10
Total capital 100
Its fixed assets are expected to provide a 15% return over the planned investment
horizon.
This firm intends to embark on projects that require an initial sinking of RM 30million
and are expected to provide in aggregate a 20% return with a standard deviation of
30% over the planned investment horizon.
These projects are to be financed wholly by the internally available funds and the
debentures are to be redeemed at the end of the planned investment horizon.
For this firm,
i) evaluate, stating your assumptions, the probability that the firm is financially
better off by embarking on the intended projects;
ii) assuming that it is only able to earn actual returns of 12% on its fixed assets
and 15% on its projects, derive the projected balance sheet at the end of the
planned investment horizon;
Question Part B – Pg 1
iii) assuming that the projects' expected returns are normally distributed,
represent the provided information in suitable mathematical notations;
iv) assuming that the projects' expected returns are normally distributed, derive an
expression for the firm’s value at the end of the planned investment horizon;
and
v) stating your other relevant assumptions, derive the probability of its ruin
brought about by embarking on these projects.
[TOTAL: 30 MARKS]
Part B
Question 1
a. Describe how you would use the Monte Carlo Simulation Technique for
project risk management purposes.
Risks can relate to any aspect of a project, it can be the cost, exposure, schedule,
man power matters, quality and many more. The key to managing risks in a project is
to identify them early and develop an appropriate risk response plan.
But before we can develop a Risk Response Plan, the impact of risks on the project
needs to be quantified. This process is known as quantitative risk analysis wherein
risks are categorized as high or low priority risks depending on the quantum of their
impact on the project. The Project Management Body of Knowledge (PMBOK)
advocates the use of Monte Carlo analysis for performing quantitative risk analysis.
Monte Carlo analysis involves determining the impact of the identified risks by
running simulations to identify the range of possible outcomes for a number of
scenarios. It is starts with the model of the project, either its project schedule or its
cost estimate depending on the objective. The analysis is based on a simultaneous
evaluation of the impact of all identified and quantified risks. The result is a probability
distribution of the projects cost and completion date based on the identified risks in
the project. The degree of uncertainty in each schedule activity and each line-item
cost element is represented by a probability distribution.
While managing a project, we would have faced numerous situations where we have
a list of potential risks for the project, but we might have no clue of their possible
impact on the project. A simplistic approach for taking scheduling confidence into
account is the PERT (also known as Three Point Estimate) technique. This
technique uses three estimates to define an approximation of the activity’s duration
and cost. This technique works as follows: Determine your Optimistic, Pessimistic
and Most Likely estimates for each activity.
The three points are estimated during an interview with subject matter experts who
usually focus on the schedule or cost elements one at a time. The risks that lead to
the three points are recorded for the quantitative risk analysis report and for risk
response planning. A random sampling is performed by using uncertain risk variable
inputs to generate the range of outcomes with a confidence measure for each
outcome. This is typically done by establishing a mathematical model and then
running simulations using this model to estimate the impact of project risks. This
technique helps in forecasting the likely outcome of an event and thereby helps in
making informed project decisions.
This is the point where using Monte Carlo Analysis can become so handy. Rather
than using the simplistic approach suggested by the PERT technique, the Monte
Carlo Analysis technique utilizes the three estimates to repeatedly simulate the
project’s completion date, while taking into account the statistical likelihood that each
activity’s duration will be somewhere on the continuum between the three estimates.
From this distribution it is possible to answer such questions as: How likely is the
current plan to come in on schedule or on budget? How much contingency reserve of
time or money is needed to provide the agency with a sufficient degree of certainty?
Using sensitivity analysis, which activities or line-item cost elements contribute the
most to the possibility of overrunning schedule or cost targets?
The result of this analysis will not be a definitive answer, i.e. the answer will not be in
the form of “based on the individual activity duration estimates, the project is
expected to finish of date X”. Rather, the answer will be in the form of “based on the
individual activity duration estimates, there is X% chance that the project will be
complete on or before date Y”.
How to Use Monte Carlo Analysis in Project Risk Management
Whenever we face a complex estimation or forecasting situation that involves a high

degree of complexity and uncertainty, it is best advised to use the Monte Carlo
simulation to analyze the likelihood of meeting our objectives, given our project risk
factors, as determined by our schedule risk profile. It is very effective as it is based on
evaluation of data numerically and there is no guesswork involved. The key benefits
of using the Monte Carlo analysis are listed below:
• It is an easy method for arriving at the likely outcome for an uncertain event
and an associated confidence limit for the outcome. The only pre-requisites
are that you should identify the range limits and the correlation with other
variables.
• It is a useful technique for easing decision-making based on numerical data to
back your decision.
• Monte Carlo simulations are typically useful while analyzing cost and schedule.
With the help of the Monte Carlo analysis, we can add the cost and schedule
risk event to our forecasting model with a greater level of confidence.
• We can also use the Monte Carlo analysis to find the likelihood of meeting our
project milestones and intermediate goals.
Figure 1, below was produced using a Monte Carlo Simulation software, and
highlights the type of outputs that such a tool will produce. The overall purpose of this
figure is to present the likelihood (or a better term – probability) of the project
completing on any particular date.
The left axis (Hits) can be used to review the number of times, during the simulation,
that a particular date was identified as a potential completion date. The right axis
(Cumulative Frequency) shows the total accumulative times that the project was
determined to complete on or before a particular date.
Meanwhile the bottom axis (Distribution) shows the identified potential completion
dates, while the height of the bar associated with that date is determined by the
number of times that the date has been identified by the simulation as being the
project’s completion date.
In this example, having analysed the project activity durations, the following
statements can now be made:
• Based on the individual activity duration estimates, there is 80% chance that
the project will be complete on or before 21/05/02.
• Based on the individual activity duration estimates, there is 50% chance that
the project will be complete on or before 15/05/02.
Figure 1: Sample Finished Date Probability - Using Monte Carlo simulation.
The yellow arrow, pointing at 08/05/02, this is the date shown as the project
completion date on the project plan. Now that we’ve performed the risk analysis we
can determine that our chances of actually finishing the project on or before that date
are just 15%!
Conclusion
Monte Carlo simulation is a valuable technique to verify the feasibility of a project by

analyzing risks specifically those related to cost and schedule. Whether the project is
time or resource sensitive, risk analysis helps to identify problem areas and help
formulate a mitigation plan. The fact that it is based on numeric data gathered by
running multiple simulations adds even greater value to this technique.
It also helps in removing any kind of project bias regarding the selection of
alternatives while planning for risks. While running the Monte Carlo simulation, it is
advisable to seek active participation of the key project decision-makers and
stakeholders, specifically while agreeing on the range values of the project risk
variables and the probability distribution patterns to be used. This will go a long way
in building stakeholder confidence in your overall risk-handling capability for the
project. Moreover, this serves as a good opportunity to make them aware of the entire
risk management planning being done for the project.
Though there are numerous benefits of the Monte Carlo simulation, the reliability of
the outputs depends on the accuracy of the range values and the correlation
patterns, if any, that you have specified during the simulation. Therefore, you should
practice extreme caution while identifying the correlations and specifying the range
values. Else, the entire effort will go waste and you will not get accurate results.
Monte Carlo probability simulations, can help us to properly carry out the risk analysis
and finally to complete the project timely within the estimated budgert and acceptable
quality, safety and sustainability.
In most large corporations or large projects require project risk analysis to verify
feasibility of the project. Whether the project is time or resource sensitive, risk
analysis helps to identify problem areas and help formulate a mitigation plan. The
following are the reason why we need a risk analysis:
i. To verify project logic and design.

ii. Identify common scheduling pitfalls that may result in misleading schedule or
risk analysis results.
iii. To verify whether the plan is practical based on identified risk events.
iv. To pinpoint likelihood of finishing project on-time and on-budget.
v. To identify key risk drivers based on criticality, risk sensitivity and/or duration
sensitivity.
vi. To reformulate project logic / sequencing based on risk analysis results.
vii. To identify minimum, most likely, and maximum task durations based on three
point estimate.
viii. Model both qualitatively and quantitatively positive and negative risk events
(threats and opportunities).
ix. To design a mitigation plan for possible risk events.
x. To report on project likelihood of completing on-time and on-budget based on
both pre-mitigated and post-mitigated schedule.
Part B
Question 1
b. A construction firm has the following abridged balance sheet:
RM(‘000,000) RM(‘000,000)
Assets
Net fixed assets 70
Cash and current assets 30
Total assets 100
Financed by:
7% Debentures 30
Equity capital 60
Total capital 100
Its fixed assets are expected to provide a 15% return over the planned investment
horizon.
This firm intends to embark on projects that require an initial sinking of RM 30million
and are expected to provide in aggregate a 20% return with a standard deviation of
30% over the planned investment horizon.
These projects are to be financed wholly by the internally available funds and the
debentures are to be redeemed at the end of the planned investment horizon.
i) evaluate, stating your assumptions, the probability that the firm is financially
better off by embarking on the intended projects;
Assuming: 1. Assets growth by 15%
2. Project growth by 20% with standard deviation of 30%

(either +30% or -30%)
By end of year, where;
V1 = V0еr , rf = 0.15 and rp = 0.20
thus, value of fixed assets: Vf1 = 70е0.15
= 81.328 Million
a) and value of projects: (deviation - 30%)
VP1 = 30е0.2x0.7
VP1 = 30е0.14
= 34.508 Million
b) and value of projects: (deviation + 30%)
VP1 = 30е0.2x1.3
VP1 = 30е0.26
= 38.907 Million
Base on the above the company financial status shall become better as the
Fixed asset shall be increased from 70 to 81.328 Million and the current & cash
asset will be either 34.508 Million or 38.907 Million from the current year
amount of 30 Million. Therefore the probability that the firm is financially better
off by embarking on the intended projects is 100% or equal to 1.
ii) assuming that it is only able to earn actual returns of 12% on its fixed assets and
15% on its projects, derive the projected balance sheet at the end of the planned
investment horizon;
Assuming: 1. Assets growth by 12%
2. Project growth by 15%
By end of year, the projected balance sheet:
Where: V1 = V0еr , rf = 0.12 and rp = 0.15
thus, value of fixed assets: Vf1 = 70е0.12
= 78.9247 Million
and value of projects: VP1 = 30е0.15
= 34.855 Million
7% debentures: 7% x 30 = 2.1
Net asset = Vf1 + VP1 = 111.675 Million
Thus, end of year balance sheet shall be as follows;
RM(‘000,000) RM(‘000,000)
Assets
Net fixed assets 78.92
Cash and current 34.86

assets
Less charges on -2.10

income
Total assets 111.68
Financed by:
7% Debentures 30
Equity capital [60 + (111.68 – 100)]

=71.68
Total capital 111.68
iii) assuming that the projects' expected returns are normally distributed, represent
the provided information in suitable mathematical notations;
rp ~ N (0.2 , 0.09)
rf ~ 0.12
iv) assuming that the projects' expected returns are normally distributed, derive an
expression for the firm’s value at the end of the planned investment horizon; and
V1 = 70е0.12 + 30erp – 2.1
v) stating your other relevant assumptions, derive the probability of its ruin brought
about by embarking on these projects.
When V0 < 60 ,
70е0.12 + 30erp – 2.1 < 60
78.92 + 30erp – 2.1 < 60
30erp < 60 + 2.1 – 78.92
30erp < -16.92
Since the value is negative, need further clarification.
Shall this value is correct, this is meaning the business have no chance to get
bankrupt.
REFERENCES
1. A Guide to the Project Management Body of Knowledge (PMBOK Guide) –

Fourth Edition (2008), Project Management Institute.
2. Associate Prof. Samiappan Marappan, Project Risk Analysis Management,

EMRM5103 Notes, November, 2009 – OUM.
3. Duncan Haughey, The Project Management Body of Knowledge (PMBOK),

Extracted on 20/11/2010 from website;
http://www.projectsmart.co.uk/pmbok.html.
4. Harold Kerzner (2009), PhD, Project Management (Tenth Edition), John Wiley
& Son, New Jersy.
5. PROJECT RISK MANAGEMENT HANDBOOK Threats and Opportunities,

Second Edition Revision 0 May 2, 2007, Caltrans, Office of Statewide Project
Management Improvement (OSPMI).
6. Risk Analysis and Management Guidence, June 2005 Extracted on

07/04/2011 from website; www.riotinto.com.
7. Project Risk Management and the application of Monte Carlo Simulation,

Quantmleap. Extracted on 07/04/2011 from website;
http://quantmleap.com/blog/2010/07/project-risk-management-and-the-
application-of-monte-carlo-simulation/.
8. Monte Carlo Simulation for Dummies, Quantmleap. Extracted on 07/04/2011

from website; http://quantmleap.com/blog/2009/10/monte-carlo-simulation-for-
dummies/
9. An Introduction to Information System Risk Management, SANS Institute

Infosec Reading Room. Extracted on 07/04/2011 from website;
http://www.sans.org/reading_room/whitepapers/auditing/introduction-
information-system-risk-management_1204.
10. Rupen Sharma, Edited & published by Michele McDonough, Using a Decision
Trees Example in Project Risk Management to Calculate Expected Monetary
Value, Extracted on 07/04/2011 from website;
http://www.brighthub.com/office/project-
management/articles/48360.aspx#ixzz1JT2AkpIx.
Reference Page i
REFERENCES (continued)
11. Extracted on 07/04/2011 from website;

http://www.brighthub.com/office/project-
management/articles/48360.aspx#ixzz1IYtzwGrQ
12. Project management software. Extracted on 07/04/2011 from website;

http://en.wikipedia.org/wiki/Project_management_software
13. ProjectManager.com. Extracted on 07/04/2011 from website;

http://www.projectmanager.com/project-management.php
14. Procore Construction Software

Project Dashboard. Extracted on 07/04/2011 from website;
http://www.procore.com/construction_project_management_software_features
.html.
15. Project management software, Visitask.com. Extracted on 07/04/2011 from

website; http://www.visitask.com/project-management-software-g.asp.
16. Tapas Kumar, Features of Microsoft Project 2007.Extracted on 07/04/2011

from website; http://www.projectsmart.co.uk/features-of-microsoft-project-
2007.html.
18. Randall Pruitt, Primavera Scheduling Software Features, eHow.com. Extracted
on 07/04/2011 from website; http://www.ehow.com/list_6790681_primavera-
scheduling-software-features.html#ixzz1JT6Ourdt.

http://www.scribd.com/doc/17558511/Primavera-Details important Primavera
Project Planner® Planning and Control Guide Version 3.0
20. Extracted on 07/04/2011 from website; http://technet.microsoft.com/en-

us/library/cc749987.aspx Important***
21. Deborah Lazicki, Risk Management: Tying it all together with Primavera®
2005, Inc. Paul Marin Primavera Systems, Inc.

http://www.scribd.com/doc/40503257/Primavera-Tips.
Reference Page ii
23. Himayatnagar Hyderabad, Primavera Project Management, CADD Centre

Training Services Extracted on 07/04/2011 from website;
http://www.scribd.com/doc/20173674/Primavera-Project-Management.
REFERENCES (continued)
24. Primavera Project Planner, Planning and Control Guide, Version 3.0,
Primavera Systems, Inc. Three Bala Plaza West Bala Cynwyd, PA 19004.
Extracted on 07/04/2011 from website;
http://www.scribd.com/doc/2539509/Primavera-project-planner-p3.
25. Jay Shukla & Kinjal Trambadia, Primavera – Basics, Extracted on 07/04/2011
from website; http://www.scribd.com/doc/50936792/Primavera-Basics.
26. An Oracle White Paper June 2009, Successfully Managing Contract Risk by
Forming Win-Win Relationships, Oracle Primavera Extracted on 07/04/2011
from website; http://www.scribd.com/doc/50936792/Primavera-Basics.
Reference Page iii

Assignment EMRM5103 Risk Management (Full)

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Name: Mohd. Norizam Bin Md.

JANUARY SEMESTER 2011

MASTER PROJECT MANAGEMENT

ASSOC PROF SAMIAPPAN MARAPPAN

MOHD. NORIZAM BIN MD. SALLEH

ANSWER ALL QUESTIONS

A Quantitative Analysis often involves more sophisticated techniques, usually

• Measurement of uncertainty in cost and time estimates.

• Probabilistic combination of individual uncertainties.

An initial qualitative analysis is essential. It brings considerable benefit in

Experience has shown that qualitative analysis - Identifying and Assessing

Figure 1: Perform Quantitative Risk Analysis: Inputs, Tools & Techniques

Figure 2: Perform Quantitative Risk Analysis Data Flow Diagram.

The main techniques currently in use are:

• Sensitivity Analysis often considered being the simplest form of risk

One typical display of sensitivity analysis is tornado diagram, which is

Figure 3: Tornado Diagram - Project Risk vs Project Cost.

• Probabilistic Analysis specifies a probability distribution for each risk and

The most common form of probabilistic analysis uses ’sampling

specified probability distribution often described by using three estimates:

It is usual to carry out a probabilistic time analysis with the aid of a

It may be appropriate to use a spreadsheet method to derive a

Another technique is the Controlled Interval and Memory Method for

Figure 4: Cost Risk Simulation Results.

• Decision Trees are another graphical method of structuring models. They

Figure 5: Decision Tree Diagram

The quantitative risk analysis advantages can be summarised as below;

• More objectivity in its assessment.

a. Identify the key features of the various commercial project management

• Record the WBS- the deliverables

Project management software covers many areas, including estimation,

Scheduling is the process to allowed project managers to shift schedules such in

Primavera project management software e.g. Primavera P6 assists in tracking project

Primavera Project Manager Deployment & Implementation including but not

1.1. Software Installation, standalone and or network installation

1.2 Develop Organizational Structures, such as

Menu Schedule Development:

Develop full cost and resource loaded schedule;

2.1. Create Work Breakdown Structure (WBS)

Figure 1: Project scope defined by using the WBS

2.2. Create project codes

2.5. Create Target / Baseline schedule.

Figure 2: Provide planned resource/cost loading reports.

2.7. Provide planned cash flows.

Menu Schedule Updating:

3.1. Update projects on regular set intervals which will include:

3.1.1. Collecting update data,

Figure 3: Identify problem areas

Menu Resource Analysis:

4.1. Producing planned resource loading / requirement reports

Figure 4: Tracking Resources Chart.

4.3. Resource levelling.

Menu Performance Reports:

5.1. Activities Completion Report, number of activities completed against planned

Figure 5: Number of activities scheduled vs. completed in a reporting period

Menu Earned Value Management System (EVMS) Implementation:

Figure 6: Scheduling to analyze project float path

Figure 7: Sample Master Schedule.

Resource Loading Reports

These reports provide information concerning proper allocation and utilization of

resources to complete the project on time. We suggest three minimum project

Costs Loading Reports

Cash Flow Analysis

Variance Schedule Variance Report