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(RISK-1698) Integrating with Project Schedule Risk Improves Analysis of Cost Risk

Primary Author: Dr. David T. Hulett Ph.D. and Mr. Eric Druker

Audience Focus: Advanced
Application Type: Application
Venue: 2014 AACE International Annual Meeting, New Orleans, LA, USA

Abstract: The main benefits of integrated cost-schedule risk analysis are in its (1) improvement of the estimates of cost risk and (2) identification of the main risks to cost, including risks to schedule that imply risks to cost, for mitigation purposes. Schedule risk is important in itself, but when time-dependent resources are at work longer than scheduled the cost will also increase. Technical, external, regulatory and even project management risks (think of biased estimates of activity durations) may affect the project’s cost through resources working longer to get the job done. Mitigating risks to schedule may reduce the cost contingency needed because of individual activities being shorter and the marching armies marching for less time. The main focus will be on (1) estimating the cost contingency needed and (2) identifying risks to cost, which may be dependent on schedule or independent of schedule, so we can understand the reasons for holding cost reserves. New simulation software developed within the last 2 to 3 years will be used to illustrate these points.