Friday, March 15, 2013

Risk Buffers – An Example

“President Bush has said that the economy is growing, that there are jobs out there. But you know, it's a long commute to China to get those jobs.”
                                                                                                - Tom Daschle

In The Schedule – Risk Buffers, the concluding post of a series on developing the well-formed schedule, I glossed over the complexity and details of planning project risk buffers.  I’d like to revisit the topic in more depth over the next few posts.
However, before I go into the complexities, I would like to present a very simple example, one I hope everyone can relate to, to demonstrate the concepts.  You are probably quite familiar with your commute:  you’ve driven it many times and you know what time you have to leave to generally get to work on time.  Even so, most commuters are occasionally surprised by unexpected traffic conditions – weather, wrecks, and road work, for example.  To demonstrate how to determine risk buffers, this exercise will touch on four of the six PMBoK Project Risk Management processes:  Identify Risks, Perform Qualitative Risk Analysis, Perform Quantitative Risk Analysis, and Plan Risk Responses.

For this example “project” we’ll only have one task:  Drive to work.  My next post will focus on identifying risks, so I won’t dwell on that step here.  For this exercise, let’s say you have these risks:
1.       There could be rain
2.       There could be snow or ice
3.       Ice could be so bad that your office closes for the day
4.       You are low on gas and need to refill before you can make it all the way to work
5.       There could be a wreck that causes a slow down
6.       There could be road work that causes a slow down
7.       There could be road work that causes a detour

(Do you see anything noteworthy about “risks” three and four?  I’ll have more to say about these in my next post.)
Something that is often missed or glossed over is dealing with Opportunities (the opposite of risk threats).  If your task is estimated to a 50% probability, there is as equal a chance of it coming in early as there is it coming in late, so you need to factor in and exploit (or enhance, share or accept) the opportunities.  For example:

8.       Traffic could be very light
9.       There could be a wreck in a location that causes your commute to be lighter than normal
10.   All the traffic lights could hit perfect for you today

The next step is to qualitatively assess the risks.  The objective of this step is to determine those risks you are going to seriously pay attention to – those that you will quantify, determine the risk response, and monitor.  It is generally done by assigning subjective Low, Medium and High values to probability (the likelihood that the risk event will occur) and impact (how the project is affected if the risk event occurs).  For example, if it’s August, the likelihood of snow or ice (risk #2) is Low.  From this analysis you generally then disregard the Low-Low risks (though note that these values can change over time, so you must periodically re-asses your risks).
The list is now winnowed down to the select risks that will receive attention.  Determine a specific (time, money or both) cost to the project for each remaining risk (including opportunities) if it occurs.

Most of what I read at this point talks about mitigating the risks, but there’s a lot more to risk response than just mitigation.  For example, add tasks to the project (such as check the weather or turn on the radio to get a traffic update).  In addition, risk responses can be transfer (ask a colleague to be there for you in case you can’t get there in time), avoid (reschedule to another day when it won’t rain) or accept (add the time and cost to the schedule).
Finally, and where this has all been leading up to, is to add a risk buffer to the project as part of the risk response.  For example, if there is a 25% chance that a risk will occur that will add twenty minutes to the commute, then you would add a five minute risk buffer to the project (in our example, you would plan to leave five minutes earlier).  You would sum the values for each appropriate risk and opportunity and add a buffer for the total amount.

With this step, you have again increased the probability of getting to the office on time – er, that is, of completing your project on schedule.
I’ll be delving deeper into risks over the next few posts using this example to demonstrate the concepts.  What about risks – threats and opportunities – would you like to understand better?

© 2013 Chuck Morton.  All Rights Reserved.

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