So you’ve run a schedule risk analysis on your project…now what? All of your work so far has been leading up to one very important decision – how to mitigate those risks. In the simplest of terms, mitigation means finding the possible new work that can reduce the probability of a discrete risk event. You typically have three main options: 1) transfer the risk, 2) reduce the risk or 3) accept the risk.
Mitigation analysis, then, is the cost‐benefit analysis through which a possible solution to “high risk” is proposed. The analysis evaluates the benefit of implementing the proposed mitigation compared to the time and money it will take to implement. Many project teams like to pretend that mitigation is free. It isn’t. The figure below shows risk event mitigation in action.
To begin with mitigation, start with the top discrete risk events. Capture the possible mitigation in the risk register, along with the cost and time required to implement the mitigation.
Now it’s time for “let’s pretend.” The project team must think of the discrete risk event and assume that the proposed mitigation has been implemented. With that assumption, team members re‐evaluate the probability and impact for that discrete risk event.
Time for the Cost/Benefit Analysis
You’ve now reached the point in the process where the true cost/benefit analysis can be done. But before starting the mitigation analysis, it’s important to identify the most important result you’re trying to deliver in the project — is it cost or schedule? Of course, every stakeholder or customer always wants to protect both cost and schedule, but there are times when it’s possible to deliver only one or the other, so choices must be made.
Knowing which option “wins” helps with the cost/benefit analysis of possible mitigation work. In addition, if the schedule is cost‐driven and a schedule risk analysis is being done, it’s important to identify the cost of a day saved (or lost). Know these parameters ahead of time, and your mitigation proposal can be in sync with the goals of the project.
You’ll then run a third risk analysis, this time using the probabilities and impacts from the risk events — but after mitigation. This analysis can tell you whether there’s enough benefit to make the mitigation worth the cost and time. The figure below suggests that doing the mitigation reduces the risk event impact by 15 days. But the mitigation costs $50,000, so is this a good business decision or not? It all depends upon the business, the specific project, and the value of a day.
The End Game: A Risk Adjusted P‐Value Schedule
Now that you’ve completed the schedule risk analysis with mitigation, you can create a deterministic schedule using all the risk modeling, including duration uncertainty, risk events, and mitigation adjustments. For example, you can create a P‐50 risk‐adjusted schedule. To do so, the P‐50 durations from the schedule risk analysis will be calculated. These durations will then be used, with the original schedule logic, to assemble a new project schedule. The only difference between the original schedule and this risk‐adjusted schedule will be the individual activity durations. You’ll have a 50 percent probability of delivering the activities in the new durations or less.
Sounds straight forward enough, right?
In theory… but if you’re looking for additional tips on getting the most out of your schedule risk analysis, I encourage you to download our new eBook, Project Risk Management for Dummies. Whether you consider yourself an expert or are just getting started, the eBook offers everything you need to know about effective project risk management.
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