Skip to main content

(RISK-2515) Realistic and Practical Project Risk Quantification (without CPM)

Level: Intermediate
Author(s): John K. Hollmann, PE CCP CEP DRMP FAACE Hon. Life
Venue: 2017 AACE International Annual Meeting, Orlando, FL

Abstract: From 2007 to 2013, the AACE® International Decision and Risk Management (DRM) Subcommittee produced several recommended practices (RPs) for risk analysis and contingency determination methods that aligned with principles documented in RP 40R-08. These included RP 42R-08 for the parametric estimating method for systemic risks and RP 65R-11 for the expected value method for project-specific risks. This paper describes how these two methods can be applied together in a way that is both realistic (i.e., yields empirically valid outcomes) and practical (i.e., can be applied on any project at any phase regardless of the project size or quality of base estimates and schedules.) The methods integrate cost and schedule risk analysis (i.e., outcomes can be presented with a joint confidence level chart) without reliance on critical path method (CPM) schedule models. Finally, the methods can be implemented using spreadsheets with a Monte Carlo simulation add-in (in fact, RP 43R-08 provides working parametric model spreadsheets.) The paper centers on a table summarizing how the methods best address the risk quantification principles in RP 40R-08.