1. Understanding risk
contingency and MR
- how risk tools can help
Val Jonas
Risk Decisions Group
11th April 2013

2. © Risk Decisions, 2013
Agenda
 How tools can help calculate:
 Cost contingency (MS Excel, @Risk & Predict!)
 Schedule contingency (MS Project, Primavera, Predict!)
 PPP rollup of contingency & Management Reserve
 The Contract Budget Baseline (Deltek Cobra)
 How tools can help manage contingency
 Cost benefit analysis
 Managing action draw down of MR budget
 Summary

3. © Risk Decisions, 2013
Distributed +
Undistributed Budget
Negotiated Cost 610k
Emergent risk budget
Baseline budget
Programme MR (held for the project)
Project MR
Programme budget
Project budget
Known risk budget
The total project budget
MR = Management Reserve

4. © Risk Decisions, 2013
Baseline budget – spreadsheet estimates
Range of results generally bell shaped
with some right hand skew
MS Excel with @Risk add-in

5. © Risk Decisions, 2013
Baseline budget
 Generally calculated during bidding process
 Only re-calculated if project is re-baselined
 Contract established
 Responsibility lies with budget holder (Control Account
Manager)
 Managed via variance analysis (Earned Value process)

6. © Risk Decisions, 2013
Distributed +
Undistributed Budget
Negotiated Cost 610k
Emergent risk budget
Baseline budget
Programme MR (for the project)
Project MR
Programme budget
Project budget
Known risk budget
Known risk budget

7. © Risk Decisions, 2013
Known risk budget – based on risk register
Risk register probability & impact
(Predict! Risk Controller)
Predict!
Risk
Analyser Range of results generally skewed
(long right hand tail).

8. © Risk Decisions, 2013
Known risk budget
 Project MR is residual risk
 Mitigation actions are included in baseline budget
 MR held at project level
 Authority to drawdown against known risks only
 Used for (additional) mitigation and recovery actions
 Re-assessed at regular intervals throughout project
 Tools manage permissions at PPP levels
 Audit trail in risk register, cost & schedule toolsets

9. © Risk Decisions, 2013
Schedule Reserve – uncertainty + risks
Completion date
Budget(£k)
Known risks
Baseline
X
0
12,000
24,000
36,000
48,000
60,000
72,000
84,000
Emergent risks
Jun 2013 Jul 2013 Aug 2013 Sep 2013 Oct 2013 Nov 2013 Dec 2013 Jan 2014 Feb 2014 Mar 2014
Schedule
uncertainty
1
Schedule
reserve
2
Contract
milestone
buffer
3

10. © Risk Decisions, 2013
Schedule MR – Schedule & risk register
Clean logic linked schedule (MS Project / Primavera)
1
+ risks (from Predict! risk register)
2

11. © Risk Decisions, 2013
Gantt and Tornado charts
Deterministic schedule Tornado chartRisked Gantt chart

12. © Risk Decisions, 2013
Schedule reserve (sMR)
 Review individual milestones as well as whole project
 Baseline (working) milestones should not include sMR
 Contractual milestones should include sMR buffer
 Schedule buffers should be managed by project
 Drawdown (schedule and budget) against known risks only
 Used for (additional) mitigation and recovery actions
 Managed via Risk Management process
 Audit trail in risk register

13. © Risk Decisions, 2013
Agenda
 How tools can help calculate:
 Cost contingency (MS Excel, @Risk & Predict!)
 Schedule contingency (MS Project, Primavera, Predict!)
 PPP rollup of contingency & Management Reserve
 The Contract Budget Baseline (Deltek Cobra)
 How tools can help manage contingency
 Cost benefit analysis
 Managing action draw down of MR budget
 Summary

14. © Risk Decisions, 2013
Programme MR 10k
Programme CBB 10k
Negotiated Cost 610k
Emergent risk budget
Project budget
Negotiated Cost 610k
Known risk budget
The Contract Budget Baseline
(including emergent risk)
10k
Project CBB 600k
Distributed +
Undistributed Budget
572k
Project MR 28k
Deltek
Cobra
600k

15. © Risk Decisions, 2013
Agenda
 How tools can help calculate:
 Cost contingency (MS Excel, @Risk & Predict!)
 Schedule contingency (MS Project, Primavera, Predict!)
 PPP rollup of contingency & Management Reserve
 The Contract Budget Baseline (Deltek Cobra)
 How tools can help manage contingency
 Cost benefit analysis
 Managing action draw down of MR budget
 Summary

16. © Risk Decisions, 2013
The benefit of response actions

17. © Risk Decisions, 2013
Action Transfer – into PMB
Approve an action to
mitigate a threat,
exploit an opportunity
or recover from realised
risk
Probability
% Weeks Cost (k) % Weeks Cost (k)
Redesign required to meet building regs 10% 10 4 No 10% 10 4
Planning permission delays 20% 16 15 Yes 20% 16 2
Contractor goes bankrupt 35% 4 10 No 5% 4 3
EU competitive tender required 0% 12 2 No 0% 12 2
Groundworks problems 20% 6 20 No 20% 6 2
Shared services require re-routing 40% 4 5 No 40% 4 5
Retaining wall needs rebuilding 5% 6 15 No 5% 6 15
Steel shortage 50% 20 5 No 50% 20 5
Impact Mitigation
Approved
Post mitigation
Action: PR campaign – 2k
Transfer work
and budget
into the PMB

18. © Risk Decisions, 2013
Project 1
MR 28k
Budget 600k
DB 572k
Cost MR for known risks
Action draw down (for known risk)
Mitigation action
transferred from
Predict! Risk Controller
to Cobra
Project 1
MR 26k
Budget 600k
DB 574k
Cost MR for known risks

19. © Risk Decisions, 2013
Audit trail for MR
MR baseline set
in Cobra
Mitigation action draw
down from MR to
distributed budget

20. © Risk Decisions, 2013
Dashboards at programme level

21. © Risk Decisions, 2013
Agenda
 How tools can help calculate:
 Cost contingency (MS Excel, @Risk & Predict!)
 Schedule contingency (MS Project, Primavera, Predict!)
 PPP rollup of contingency & Management Reserve
 The Contract Budget Baseline (Deltek Cobra)
 How tools can help manage contingency
 Cost benefit analysis
 Managing action draw down of MR budget
 Summary

22. © Risk Decisions, 2013
@Risk (for MS Excel)
 Spreadsheet addin
 Apply uncertainty to existing spreadsheets
 Use on risk register data exported to MS Excel
 Mostly used for cost risk analysis
 Familiarity of MS Excel is an advantage

23. © Risk Decisions, 2013
Predict! (Risk Controller and Analyser)
 Enterprise risk management
 Multi project, programme, portfolio (PPP)
 Integrated toolset
 Risk, issue, opportunity and uncertainty management
 Cost & Schedule risk analysis for uncertainty & risk
 MS Project & Primavera interface
 Audit trail
 Mitigation/recovery action ownership, approval & drawdown

24. © Risk Decisions, 2013
Deltek Cobra
 Cost management tool
 Earned Value presents schedule and cost progress as a
measure of cost
 WBS (imported) from scheduling tool basis for cost control
 Analyse budgets, actuals and forecasts
 Time phased, resourced
 Report against baseline, forecast final project costs
 Multi project view

25. © Risk Decisions, 2013
Questions
Predict! Risk Controller/Analyser: www.riskdecisions.com
@Risk: www.palisade.com
Cobra: www.deltek.com
Primavera: www.oracle.com
val.jonas@riskdecisions.com +44(0)7831 881297
Contact details:

26. © Risk Decisions, 2013
Interfacing Risk & Earned Value Management
ISBN- 10: 1-903494-24-9
ISBN- 13: 978-1-903494-24-0
www.apm.org.uk/interfacingRiskandEarnedValueManagement.asp