Level: Advanced
Author(s): Colin H. Cropley
Venue: 2017 AACE International Annual Meeting, Orlando, FL
Abstract: After several decades of development of project quantitative risk analysis for time and cost forecasting of project outcomes, achievement of consistently accurate results has remained elusive. Realistic time forecasts of projects have been found to be forecast well by sound Monte Carlo Simulation (MCS) based schedule risk analysis processes integrating schedule impact risk events. But realistic cost forecasting has proven more problematic. This paper demonstrates the capacity of an integrated cost and schedule risk analysis (IRA) method using cost-loaded critical path method (CPM) schedules and MCS to utilise parametric methods to represent and model systemic risks and to include decision-making during iterations to represent realistic treatment of project risks. But CPM based IRA can be extended to incorporate modelling of operation of the assets created by the project to produce probabilistic cashflows based on Capex and Opex uncertainties and risk events as well as revenue uncertainties and risk events, escalation and exchange rate uncertainties and risk events. In this way integrated modelling and scenario analyses can embrace the Total Cost Management framework envisaged by AACE® to support project final investment decisions.
Author(s): Colin H. Cropley
Venue: 2017 AACE International Annual Meeting, Orlando, FL
Abstract: After several decades of development of project quantitative risk analysis for time and cost forecasting of project outcomes, achievement of consistently accurate results has remained elusive. Realistic time forecasts of projects have been found to be forecast well by sound Monte Carlo Simulation (MCS) based schedule risk analysis processes integrating schedule impact risk events. But realistic cost forecasting has proven more problematic. This paper demonstrates the capacity of an integrated cost and schedule risk analysis (IRA) method using cost-loaded critical path method (CPM) schedules and MCS to utilise parametric methods to represent and model systemic risks and to include decision-making during iterations to represent realistic treatment of project risks. But CPM based IRA can be extended to incorporate modelling of operation of the assets created by the project to produce probabilistic cashflows based on Capex and Opex uncertainties and risk events as well as revenue uncertainties and risk events, escalation and exchange rate uncertainties and risk events. In this way integrated modelling and scenario analyses can embrace the Total Cost Management framework envisaged by AACE® to support project final investment decisions.