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Risk Planning

Risk Planning supports sound business, program and project management processes. It allows management to be proactive rather than reactive and enables open and honest communication among all stakeholders, both internal and external to an organization. Project Stakeholders recognize that risks are is inherent in any project and that it is necessary to implement a risk management program to identify potential risks and take measures to handle them. 

The outputs from the associated Risk Analysis will interact with the planning phase of the project and may be used to confirm the planned dates and costs or otherwise set cost and schedule contingencies.

 A schedule risk analysis uses statistical techniques to predict a level of confidence in meeting a program’s completion date. This analysis focuses on key risks and how they affect the schedule’s activities. The analysis does not focus solely on the critical path because, with risk considered, any activity may potentially affect the program’s completion date. A schedule risk analysis requires the collection of program risk data such as:

  1. Risks that may jeopardize (threats) or enhance (opportunities) schedule success.
  2. Probability distributions of risk impact if it occurs, usually specified by a three-point estimate of activity durations (optimistic, most likely, and pessimistic) or multiplying factors if the risk is to be applied to several activities.

Once the distributions have been established, a statistical simulation (typically a Monte Carlo simulation) is executed. The simulation uses random numbers to select durations for each activity, which in turn adjusts activity dates. The Monte Carlo simulation continues this random selection thousands of times, creating a new program duration estimate and critical path each time. The resulting frequency distribution displays the range of program completion dates along with the probabilities that activities will occur on these dates. The Project Team then decides what probability curve is adequate to finish the work on time, and schedule contingency is then added to the cost estimate and schedule.

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