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(RISK-1043) Integrated Cost-Schedule Risk Analysis

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Primary Author: Dr David T. Hulett Hulett & Associates, LLC
Co-author(s): Mr Michael R Nosbisch CCC PSP Project Time & Cost

Audience Focus: Intermediate
Application Type: Experience-Based
Venue: 2012 AACE International Annual Meeting, San Antonio, TX, USA

Abstract: This paper is based on the Recommended Practice (No. 57R-09) of AACE International that defines the integrated analysis of schedule and cost risk to estimate the appropriate level of cost and schedule contingency reserve on projects.

The main contribution of this RP is to include the impact of schedule risk on cost risk and hence on the need to hold cost contingency reserves. Additional benefits include the application of the risk drivers method of using risks to drive the Monte Carlo simulation of a resource-loaded CPM schedule. By using the risks we can prioritize the risks to cost, some of which are commonly thought of as risks to schedule, so that risk mitigation may be conducted in an effective way.

The methods presented in the RP are based on integrating the cost estimate with the project schedule by resource-loading and costing the schedule's activities. Using Monte Carlo techniques one can simulate both time and cost simultaneously, permitting the impacts of schedule risk on cost risk to be calculated.