Reducing Project Costs and Risks with Oracle Primavera Risk Analysis

Introduction

In this section, Matt introduces Eric Tortella, a partner at Oracle Primavera. Eric is an expert in risk analysis and analytics with over a decade of experience in enterprise software.

Eric's Background

• Eric works for Technology Partners Incorporated and specializes in analytics and risk.

• He has expertise in the risk base and will be giving an overview of how Oracle Primavera Risk Analysis can help clients manage projects more effectively.

Presentation Overview

In this section, Eric provides an overview of what his company does and the services they offer.

Services Offered by Technology Partners Limited

• The company supports clients in improving their decision-making outcomes through enterprise project management and performance management.

• They provide services such as model building, time-series forecasting, simulation, and optimization.

• They focus on strategy business analysis to identify problems or design solutions that align with market needs.

• They use the dynamic enterprise alignment model to help organizations achieve their target business objectives using people, technology, and operations.

• Some of their clients include Schlumberger, Monsanto, United States Geological Survey (USGS), Extra da among others.

Tools Used by Technology Partners Limited

In this section, Eric talks about some of the tools used by his company beyond Oracle Primavera Risk Analysis.

Other Analytical Solutions Used by Technology Partners Limited

• They work with other analytical solutions specialized in the RISC realm such as Oracle Crystal Ball and Auto View.

Risk Analysis for Project Management

In this section, Eric explains how risk analysis can translate into immediate ROI.

Working with Averages vs. Ranges

• Eric highlights the difference between working with averages and ranges in project management.

• He explains that using ranges allows for a more accurate representation of potential outcomes and helps to identify areas where risks can be mitigated.

Challenges and Opportunities in Simulation and Risk Analysis

• Eric discusses some of the challenges and opportunities associated with simulation and risk analysis in project management.

Averages Conceal Risk

The speaker explains how averages can conceal risk and how working with PRA and risk analysis helps to identify concealed risks.

Examples of How Averages Can Conceal Risk

• The speaker gives an example of a river that has an average depth of 3 feet. However, the guy who tries to cross it is not a good swimmer and drowns because he did not know about the precipice.

• The speaker gives another example of a business opportunity where there are three possible outcomes: worst case, best case, and most likely. Without quantifying risk and uncertainty, we only have three possibilities without probability.

Benefits of Working with Risk Analysis Tools

• By using risk analysis tools, we get a full range of outcomes with probabilities. We can see the chances of being below or above profit expectations.

• By looking at two cases, we can compare them based on their probabilities. We can pick the one that has a higher probability of meeting our business objective.

Defining Ranges

The speaker defines what ranges are and why they are necessary to communicate more useful information.

Definition of Range

• A range is a series of potential occurrences that define what could happen in different scenarios.

Importance of Ranges in Communicating Information

• Ranges are necessary to communicate more useful information than just giving an estimate or prediction for one outcome.

Estimation and Analytics

This section discusses the importance of estimation in project management, including using ranges and historical data. It also introduces how analytics can improve project process performance.

Importance of Ranges in Estimation

• Two types of estimates: fixed time or range.

• Ranges provide more information and allow for understanding bias.

• Historical data can be used to estimate projects through tables, statistical distribution rules of thumb, or three-point estimates.

Project Performance Improvement with Analytics

• Simulation models require ranges as inputs.

• Over 50% of projects fail to meet expectations due to overoptimistic initial cost and schedule estimates.

• The Chaos Report by the Standish Group shows high failure rates in information technology projects.

• Simulation and optimization can improve project success rates by quantitatively assessing risks and making conscious decisions on budgeting and scheduling.

Risks in Project Management

This section discusses the risks associated with poor risk assessment in project management, including critical tasks being misidentified, credibility issues with funding levels, difficulty managing scope creep, rework costs, and slowed progress.

Risks Associated with Poor Risk Assessment

• Critical tasks may be misidentified without quantitative risk assessment.

• Credibility issues arise when funding levels are set too low or too high.

• Understanding task costs helps manage budgeting and scheduling risks through simulation.

Costs of Challenge Projects

• Rework costs increase payroll expenses and slow down progress.

• Scope creep becomes difficult to manage when progress slows down.

Introduction to Project Risk Analysis

In this section, the speaker introduces the concept of project risk analysis (PRA) and how it can help organizations achieve their goals. The speaker explains the process of building an operational plan, tactical plan, and strategy. They also discuss how PRA can support an organization in achieving its goals.

Building an Operational Plan

• Organizations build an operational plan that becomes tactical and then a strategy.

• The estimation process involves identifying projects, cost assessment, time replacements, failure modes, system improvements, process improvements.

• Project plans include cost assessment, resource allocation, duration estimation.

Portfolio Planning

• After analyzing the long-term financial viability of projects using consolidated financials and PV go/no-go criteria.

• Projects that meet capital requirements go into a portfolio plan.

• Primavera Enterprise Portfolio Management is used to optimize execution scenarios and resource allocations.

Using PRA for Project Risk Management

• PRA supports organizations in achieving their goals by providing tools for project feasibility studies, project selection bit analysis scheduling resource planning risk identification critical path optimization benefits valuation asset management strategies financing.

• Monte Carlo simulation is used to quantify the effects of variation in current scenarios.

• PRA helps identify variables affecting project plans and determine the best way to strategize delivery on time and on budget.

Introduction to Project Planning and Risk Analysis

In this section, the speaker introduces project planning and risk analysis. They explain how businesses define projects, set objectives, build a plan, and validate assumptions with subject matter experts. The speaker also discusses how PRA and p6 bring a layer of risk analysis to project planning.

Defining a Project

• Businesses define projects by setting objectives and building a plan.

• Plans are built in MS Project or P6 based on historical assumptions.

• Assumptions are validated with subject matter experts.

• PRA and p6 bring a layer of risk analysis to project planning.

Adding Variants to Your Project

• Management asks questions about scheduling plans, critical tasks, and project duration.

• Projects can be imported from any system into PRA.

• A quick check is run on all tasks to ensure the project was designed correctly.

Conclusion

In this section, the speaker concludes the presentation by discussing how PRA provides businesses with more information to make informed decisions about their projects.

Providing More Information for Informed Decisions

• Exporting scenarios to Excel allows for special reporting purposes.

• A quick check is run on all tasks to ensure the project was designed correctly.

Using Risk Analysis in Project Management

In this section, the speaker discusses how to use risk analysis in project management using a tool called Monte Carlo simulation.

Importing a Schedule and Adding Risk

• Open-ended tasks can cause issues when simulating or analyzing a schedule.

• The first step is to import the schedule and analyze its distributions.

• To add risk, select tasks and set the minimum percentage of completion as well as the most likely duration.

• Changing distributions and inputs will reflect the added risk.

Running Monte Carlo Simulation

• To run Monte Carlo simulation, press the dice button and choose options such as number of trials, cost sensitivity, duration, NPV, etc.

• Filters can be used to view simulated tasks only.

• The program runs through scenarios by trying all possible combinations of start-finish constraints, resources, etc.

Analyzing Results

• The distribution graph shows percentiles for each task in the schedule.

• Tasks that have been simulated and are deemed uncritical are green while critical ones are red.

• PRA calculates this for every task in your schedule so you don't have to specifically go into it.

Features of PRA Tool

In this section, the speaker discusses some features of PRA tool that can be used for project management.

Setting Task Parameters

• Tasks can be set with parameters such as dates, constraints, links, resources, costs, and uncertainty.

• Conditional branches can be created to deal with different scenarios.

Updating Schedule

• The schedule is updated automatically as changes are made to tasks.

• The Gantt chart shows how the schedule is getting updated and moves accordingly.

Conclusion

• PRA tool is a powerful tool for project management that allows you to simulate different scenarios and analyze risks.

Applying Variance to a Schedule

In this section, the speaker discusses how to apply variance quickly to a schedule. They explain how to incorporate feedback into functional specifications and demonstrate how to use deterministic and probabilistic methods for scheduling.

Using Deterministic and Probabilistic Methods for Scheduling

• The base case deterministic method suggests that a task will be completed on January 18th, but there is only a 30% chance of that happening.

• To be 90% sure of completing the task, you would need to add almost a week.

• There are other factors besides start date that need to be accounted for when estimating duration, such as float and cost.

• NPV data can also be calculated in some cases.

Estimating Costs and Budgets with Risk Information

In this section, the speaker discusses how to estimate costs and budgets by taking risk information into account. They explain how to create a risk register with qualitative and quantitative risks, define fields for mitigating risks, and tie qualitative risks back to quantitative plans.

Creating a Risk Register

• The risk register provides two types of risk: qualitative and quantitative.

• Qualitative risks include things like contract delays or delivery overruns.

• Waiting can be assigned based on probability percentages.

• PRA enables you to tie qualitative risks with impact back to your quantitative plan.

Risk Registry and Mitigation

In this section, the speaker discusses how to use a risk registry to compare the changes in risk profile by doing certain things versus not doing them. The speaker also demonstrates how to assign tasks to specific risks with a probability of it happening and then define its impacts.

Using a Risk Registry

• A risk registry enables you to compare how your risk profile changes by doing these things versus not doing them.

• You can assign tasks to specific risks with a probability of it happening and then define its impacts.

• The pre-mitigated worksheet is shown where no risk method has been added yet.

Pre-Mitigated Worksheet

• After running the pre-mitigated worksheet for 1000 times, there is an 86% chance that you would end up costing more than what you thought on cost and finished state.

• There is less than a 1% chance that you would be able to deliver on your date as planned, and it would probably take almost eight months longer than anticipated.

• By applying these methods, companies can avoid project delivery issues like Rim's.

Comparing Pre-Mitigated vs Post-Mitigated Plans

• The post-mitigated plan reduces the upper bound by five months, which can be huge in terms of cost.

• Both plans start off relatively at the same place; however, the post-mitigated plan tops out at a lower cost.

Probabilistic Cash Flow

In this section, the speaker talks about PRA (Probabilistic Risk Assessment) and how it is used for a cash flow on your schedule.

PRA for Cash Flow

• The speaker presents how PRA does it for a cash flow on your schedule.

• By inputting more information into the project, you can sell the more you put into it.

Probabilistic Cash Flow

In this section, the speaker discusses how to analyze and present the risk relating to cost expenditures and cash flow using probabilistic cash flow. They also show how to export information into Excel and optimize it.

Analyzing Probabilistic Cash Flow

• The probabilistic cash flow shows what the cash flow will be at 10% and 90%, creating a median view.

• The space in between is 80% of all project occurrences.

• You can compare the cumulative curve of costs to a deterministic estimate.

• Simulating costs can help avoid project shortcomings and delays.

Exporting Information into Excel

• You can export information from probabilistic cash flow into Excel to optimize it.

• This allows you to figure out which combination of projects would give you the highest NPV.

• Real options analysis enables you to calculate expanded NPV.

Forecasting with Predictor

In this section, the speaker discusses using Predictor for time series forecasting, which drives an NPV model that calculates payback period, discounted cash flow, internal rate of return, and terminal value.

Using Predictor for Time Series Forecasting

• Green cells are used for forecasting without going into Crystal Ball.

• Other managers or subject matter experts can plug in numbers that calculate payback period, discounted cash flow, internal rate of return, and terminal value.

Introduction to Portfolio Model

In this section, Eric introduces the portfolio model and how it fits into their project. They are simulating different projects side-by-side with a specific example.

Portfolio Model

• The portfolio model is used to simulate different projects side-by-side with a specific example.

• Assumptions are made about how many people can be assigned to each project, and what resources are available.

• The model will produce the highest return using optimization by turning on and off both resources and projects.

Building a Portfolio Plan

In this section, Eric explains how they built their portfolio plan using the approach described in the previous section.

Building a Portfolio Plan

• Using the approach described earlier, they built their portfolio plan.

• Technology Partners Limited has a toll-free number as well as a local number for any questions or concerns regarding PRA or crystal ball.