Project Management: Week 3 Project Management: Week 3

Project
Project Management:
Management: Week
Week 33
Dr. Jim Marion, PMP
1–1
Week
Week 33 Agenda:
Agenda: PERT
PERT
• Quick review—network diagrams

• Statistics refresher: Probability and Z Scores
• Introduction to PERT
7–2
Unit
Unit 22 Managing
Managing various
various Aspects
Aspects of
of
Projects
Projects
• 2.1 Project Time Management: WBS –Work breakdown

structure, Gantt Chart, Arrow on Arrow diagram,
PERT/CPM
• 2.2 Project Cost Management –Introduction to RFP,
Invitation to Bid, Tender process, Technical and
Commercial Bids.
• 2.3 Project Quality Management
• 2.4 Project Risk Management
• 2.5 Project Completion and Handover –Methods of
Project Closure
7–3
Project Scheduling “Mind Map”
Work
Packages
Charter Network
Diagram/PD
M/CPM
PERT/Mont
Project
Strategy Scope WBS e Carlo
Scheduling
Critical
Chain
Project
Lifecycle
Resources
Leveling
Project Project Optimizatio
Selection Estimating n/Crashing
Monitoring
&
Controlling-
EVM
6–5
Network
Network Information
Information
TABLE 6.2
6–6
Activity-on-Node
Activity-on-Node Network
Network
FIGURE 6.5
6–7
Activity-on-Node
Network Forward
Forward Pass
Pass
FIGURE 6.6
6–8
Forward
Forward Pass
Pass Computation
Computation
• Add activity times along each path in the
network (ES + Duration = EF).
• Carry the early finish (EF) to the next activity
where it becomes its early start (ES) unless…
• The next succeeding activity is a merge activity,
in which case the largest EF of all preceding
activities is selected.
6–9
Activity-on-Node
Network Backward
Backward Pass
Pass
FIGURE 6.7
6–10
Backward
Backward Pass
Pass Computation
Computation
• Subtract activity times along each path in the
network (LF - Duration = LS).
• Carry the late start (LS) to the next activity
where it becomes its late finish (LF) unless
• The next succeeding activity is a burst activity, in
which case the smallest LF of all preceding
activities is selected.
6–11
Determining
Determining Free
Free Slack
Slack (or
(or Float)
Float)
• Free Slack (or Float)
– Is the amount of time an activity can be delayed after
the start of a longer parallel activity or activities.
– Is how long an activity can exceed its early finish date
without affecting early start dates of any successor(s).
– Allows flexibility in scheduling scarce resources.
• Sensitivity
– The likelihood the original critical path(s) will change
once the project is initiated.
– The critical path is the network path(s) that has (have)
the least slack in common.
6–12
Activity-on-Node
Network with
with Slack
Slack
FIGURE 6.8
6–13
Free
Free Slack
Slack Example
Example
FIGURE 6.9
6–14
PERT,
PERT, Schedule
Schedule Risk
Risk and
and Uncertainty
Uncertainty
Schedule risks!
7–15
Why
Why PERT?
PERT?
1. The assumption that we know the

duration of each task in the project is
usually wrong.
2. We can combine estimates so that we
can arrive at an “average” estimated
time for each task and for the overall
project.
3. When we use averages, this gives us
a way to calculate the probability of
completing the project by a given date.
7–16
PERT—Program
PERT—Program Evaluation
Evaluation Review
Review Technique
Technique
• Assumes each activity duration has a range that

statistically follows a beta distribution.
• Uses three time estimates for each activity:
optimistic, pessimistic, and a weighted average
to represent activity durations.
– Knowing the weighted average and variances for each
activity allows the project planner to compute the
probability of meeting different project durations.
7–17
Activity
Activity and
and Project
Project Frequency
Frequency Distributions
Distributions
FIGURE A7.1
7–18
Uh-oh…PERT
Uh-oh…PERT uses
uses stats….
stats….
7–19
First,
First, let’s
let’s look
look at
at the
the normal
normal curve
curve
7–20
This is normal?
Importance of
Normal Distribution
1. Describes many random processes or
continuous phenomena
2. Basis for classical statistical inference
Normal Distribution
f(x )
How wide?
How thin?
Mean
Median
Mode
Central tendency
μ
Effect of Varying
Parameters ( & )
f(X)
B
A C
X
Measuring:
• Time duration of class: Hours
• Distance from here to there: Miles/Kilometers
• How far from the center of a normal curve?
– (Or, “How many standard deviations?”)

How far from center?
Count number of Standard Deviations!

Probability and the normal curve
Probability is the
area under
curve!
f( x )
x
c d
The normal curve and probability
Heard of “Six Sigma?”
6
So what? Why should PMs care about this?
1. PERT analysis is based on an AVERAGE (i.e. mean)

of task duration estimates.
2. Since we are finding the mean, we can also find the
standard deviation for each task and the entire project.
3. The project standard deviation is a unit of time,
therefore we can determine how many project standard
deviations are in any given unit of time.
4. Therefore, by using the normal curve, we can find the
probability of achieving a specific project target date.
What
What is
is “Z”?
“Z”?
• “Z” is simply “# of standard

deviations”
• Example: Z value of 1.25 is
“1.25 standard deviations”.
• The number corresponding to
the Z value in the Z table is the
area under the number curve—
and this is also the probability
7–31
7–32
Normal
Normal Curve
Curve Rules
Rules of
of Thumb
Thumb
Copyright © Pearson Education, Inc., Allyn & Bacon 2009

Class
Class Exercise
Exercise
• How long, in minutes will this class last today?
• What is the estimated probability of finishing
class at a given number of minutes?
7–34
Class
Class Time
Time Estimate
Estimate (Minutes)
(Minutes)
• 3 hrs, 20 mins = 210 mins
– Let’s assume previous class finish times
Probability of finishing at 210 minutes?
Class Times Probability of finishing at 195 minutes?
Class 1 210 95% probability finishing time?
Class 2 205
Class 3 207
Class 4 212
Class 5 205
Class 6 200
Class 7 220
Mean 208.43
SD 6.40
7–35
Let’s
Let’s estimate
estimate project
project task
task durations
durations
• Up to now, task duration was a given

• In reality, task duration is not known for certain
• Estimates may be used—but we need a way to
capture a range of estimates.
Hmmm..how
long is it
gonna take??
7–36
Activity
Activity Time
Time Calculations
Calculations
The weighted average activity time is computed by

the following formula:
(7.1)
7–37
Activity
Activity Time
Time Calculations
Calculations (cont’d)
(cont’d)
The variability in the activity time estimates is approximated by the following
equations:
The standard deviation for the activity:
(7.2)
The standard deviation for the project:
(7.3)
Note the standard deviation of the activity is squared in this equation; this
is also called variance. This sum includes only activities on the critical
path(s) or path being reviewed.
7–38
Probability
Probability of
of Completing
Completing the
the Project
Project
The equation below is used to compute the “Z” value found in

statistical tables (Z = number of standard deviations from the
mean), which, in turn, tells the probability of completing the
project in the time specified.
(7.4)
7–39
Activity
Activity Times
Times and
and Variances
Variances
TABLE A7.1
7–40
Hypothetical
Hypothetical Network
Network (cont’d)
(cont’d)
FIGURE A7.2 (cont’d)
7–41
Activity
Activity Times
Times and
and Variances
Variances
TABLE A7.1
7–42
Possible
Possible Project
Project Duration
Duration
Probability project is completed before Probability project is completed
scheduled time (TS) of 67 units by the 60th unit time period (TS)
FIGURE A7.3
7–43
ZZ Values
Values and
and Probabilities
Probabilities
TABLE A7.2
7–44
Finding Z Values
for Known Probabilities
What is Z, given Standardized Normal
P(Z) = .1217? Probability Table (Portion)
=1 Z .00 .01 0.2

.1217
0.0 .0000 .0040 .0080
0.1 .0398 .0438 .0478
=0 ?
.31 Z 0.2 .0793 .0832 .0871
Shaded area 0.3 .1179 .1217 .1255

exaggerated
Finding X Values
for Known Probabilities
Normal Distribution Standardized Normal Distribution
 = 10 =1
.1217 .1217
 = 5 8.1
? X  = 0 .31 Z
X    Z    5   . 3 1 1 0   8 . 1
Shaded areas exaggerated
Key
Key Takeaways:
Takeaways:
1. The best estimates from the team produce a

schedule with only a 50/50 chance of delivering
according to the schedule!
2. Any schedule reduction takes you to a <50%
probability of delivering according to schedule!
3. You will have to add time to the schedule to
have a reasonable chance of meeting your
schedule commitment.
7–47
Case
Case Study
Study Example
Example
7–48
Assume that you are a project manager within a company that
installs upgrades and maintains computers and networks. Your
company has won a bid to complete a project consisting of
upgrading a network of desktop computers in a call center. The
upgrades consist of updating the operating system and call center
application of each of the computers, performing memory upgrades
to those desktops that require it, and converting from a wired to a
wireless LAN network.
Assume further that the schedule is critical and that company

executives are seeking a commitment from the project team to
reduce the project schedule as much as possible. Once the scope
statement and the draft WBS for the project have been created, the
high level tasks required in this project that constrain the overall
project schedule are identified. These basic tasks are extracted
from a review of the draft project WBS, and listed as follows in order
to create an initial network diagram and schedule estimate:
7–49
Tasks
Tasks
1.Desktop PC configuration audit

2.Call center bandwidth analysis
3.Desktop PC upgrade plan
4.Order computer memory
5.Order wireless access equipment
6.Order software
7.Install wireless access system
8.Install memory and wireless cards in call center
desktops
9.Install operating system and application software
10.Author training materials and “getting started
guide”.
7–50
Identifier Task Description Predecessor
1 Configuration audit ---
2 Bandwidth analysis ---
3 PC upgrade plan 1
4 Order computer memory 3
5 Order wireless access equipment 2,3
6 Order software 3
7 Install wireless access system 5
8 Install memory and wireless cards 4,5
9 Install OS and Apps 6,8
10 Author training materials/guide 6
11 Conduct training 7,9,10

7–51
Network
Network diagram
diagram
7–52
Identifier Task Description Predecessor BC WC ML
1 Configuration audit --- 5 15 10
2 Bandwidth analysis --- 3 7 5
3 PC upgrade plan 1 5 10 7
4 Order computer memory 3 2 5 3
5 Order wireless access 2,3 3 6 4
equipment
6 Order software 3 2 5 3
7 Install wireless access system 5 5 15 10
8 Install memory and wireless 4,5 7 15 10
cards
9 Install OS and Apps 6,8 5 10 7
10 Author training 6 10 20 15
materials/guide
11 Conduct training 7,9,10 5 10 7
12 System cutover 11 1 1 1
7–53
Identifier Task Description Predecessor WAE
1 Configuration audit --- 10
2 Bandwidth analysis --- 5
3 PC upgrade plan 1 7.2
4 Order computer memory 3 3.2
5 Order wireless access 2,3

4.2
equipment
6 Order software 3 3.2
7 Install wireless access system 5 10
8 Install memory and wireless 4,5

10.3
cards
9 Install OS and Apps 6,8 7.2
10 Author training 6
15
materials/guide
11 Conduct training 7,9,10 7.2
12 System cutover 11 1
7–54
7–55
Identifier Task Description Predecessor BC WC ML ((WC-
BC)/6)^2
1 Configuration audit --- 5 15 10 2.78
2 Bandwidth analysis --- 3 7 5
3 PC upgrade plan 1 5 10 7 .69
4 Order computer memory 3 2 5 3 .25
5 Order wireless access 2,3 3 6 4
equipment
6 Order software 3 2 5 3
7 Install wireless access system 5 5 15 10
8 Install memory and wireless 4,5 7 15 10 1.78
cards
9 Install OS and Apps 6,8 5 10 7 .69
10 Author training 6 10 20 15
materials/guide
11 Conduct training 7,9,10 5 10 7 .69
12 System cutover 11 1 1 1 1
7–56
Project
Project Standard
Standard Deviation
Deviation
Given that the critical path includes task 1-3-

4-8-9-11-12, the total project duration based
on the estimates for all tasks in the critical
path is (10+7.2+3.2+10.3+7.2+7.2+1) giving
a total duration of 46 days.
Taking the square root of the sum of the of the

variances of the tasks on the critical path we
have: SQRT(2.78+.69+.25+1.78+.69+.69+1)
gives a value of 2.81 days.
7–57
What
What does
does this
this mean?
mean?
What is the probability of actually achieving a project schedule

of 46 days?
What about 41 days?
What about 50 days?
How would you go about calculating this?
7–58
The
The “Recipe”
“Recipe”
PERT Recipe for Thanksgiving
1.Find durations for all tasks te=(BC+4*ML+WC)/6

2.Create network diagram
3.Find critical path
4.Find the standard deviations for all tasks on the critical path (WC-
BC)/6
5.Find project standard deviation
a) Square all standard deviations for all tasks on critical path
b) Add’em up
c) Take the square root of the result
7–59
The
The “Recipe”
“Recipe” (cont.)
(cont.)
6. We want to convert units of time into standard deviations so that

we can calculate the probability of achieving a target schedule
date.
7. The project te is sum of the durations on the critical path—and

the probability of achieving this is 50%.
8. What is 95% level? Approximately 1.7 standard deviations. (How

to find? Find probability on the Z table, and then find the
associated # of standard deviations.)
Example: If we want to find Z for reducing project by 1, 3, or 5 days:
-1/(project SD)
-3/(project SD)
-5/(project SD)
7–60
What
What ifif you
you don’t
don’t have
have aa convection
convection
oven?
oven? ….or
….or aa ZZ table
table in
in your
your wallet?
wallet?
Ballpark the probability using the “Rules of Thumb” for the normal curve
(think 68-95-99).
Example: What if I need to add or subtract units of time to a project that

is equivalent to 1.5 standard deviations?
Looking at the curve below, +/- 1 SD is 68.26% of the normal curve, so

-1 SD is 50%-1/2 of 68.24% or 15.88 %. +/- 2 SD is 95.44% of the area.
So then, -2 SD is 50% - ½ of 95.44 or 2.28%. -1.5 SD would then be

somewhere between 2.28 and 15.88% probability (checking with the Z
table it is around 7%...)
7–61
What
What ifif you
you don’t
don’t have
have aa convection
convection
oven?
oven? ….or
….or aa ZZ table
table in
in your
your wallet?
wallet?
What about adding 1.5 SD using the Rules of thumb? In this case,
we add to 50%, not subtract, as follows:
+/- 1 SD =50% + ½ of 68.44% =84.22%

+/- 2SD = 50% +1/2 of 95.44% = 97.72%.
1.5 SD would fall somewhere between 84.22% & 97.72%. (The Z

table tells us it is around 93%...)
7–62
Normal
Normal Curve
Curve Rules
Rules of
of Thumb
Thumb
Copyright © Pearson Education, Inc., Allyn & Bacon 2009

Group
Group Exercises
Exercises
Sample problem loaded into your group file exchange
• Create network diagram

• Use PERT analysis to find expected
duration for each task
• Find project mean and SD for project
critical path
• Answer questions:
• What is the 95% probability of
completing the project?
• What is the probability of completing
the project if 1,3, and 5 units of time
are removed?
7–64
Project Management
Solutions to Help You
Stay on Schedule and
on Budget
Dr. Jim Marion, PMP

Program Chair and Assistant Professor
MS in Project Management
Depart of Management Sciences
College of Business
Basic assumptions
• Staying on schedule and on budget requires
that you have an achievable schedule to begin
with
• Sponsoring executives often don’t have
visibility of the risks associated with their
schedule requests.
• YOU can help them! Looks ok
to me!
A typical scenario…..
Say…I need you to take

charge of our office
relocation project…..that
would be great….
What do you do?
• An office relocation is:
– Temporary (has a beginning and ending)
– Unique
– Complex
– Uses resources
– Therefore…it’s a project!
What’s next? Getting Started
• Formal authorization…the charter
• Identify who is involved, who is interested in the
outcome, who might be willing to help …..the
stakeholders
• Determine exactly WHAT needs to be done….the
SCOPE
• First boil it down…the scope statement
• Then, expand….the WBS
The charter…
Say…I am going to need

you to sign off on this
formal authorization for
this project...that would
be great….
The scope statement
We will assess our current needs as

well as growth needs for the next
three years. We will identify, select,
lease, and create an office layout in a
new building and move our company.
We will seek to use as much existing
infrastructure as possible. Modifying
our existing building will NOT be
considered as an option.
The stakeholders
• Who is involved in the project?
• Who is affected by it?
• Who has an interest in it?
• Who should we think about in the larger
community?
A High-Level WBS for the Office
Relocation
Budget
Finance Building
Payments specifications
New Location Layout

Supplies
Furniture
Infrastructure Transition Plan
Office Relocation
Communication Layout
Utilities
Planners Existing Location
Close out plan
Coordinators Relocation
Management
Packing
Packers Personnel
Movers
…a hierarchical and
categorical structured
outline of the project
deliverables…
The Task List (high level)…
1 New location requirements

2 New location search
3 Select location
Include only those tasks
4 Inventory current location required for producing
5 New location layout
the deliverables in the
6 Select moving company
7 Order utilities WBS..!
8 Purchase network & servers
9 Negotiate lease
10 Pack furniture
11 Pack computer equipment
12 Transport moved items
13 Unpack
14 Cutover to new network
15 Close existing building
The initial schedule
estimate... 8-30
14-3
2-30 3-30 9-10 7-5 10-5 11-5 12-5 13-5
1-10
15-5
4-10 5-20 6-10

3 Select location
Summing the red boxes 4 Inventory current location
(“critical path”) = 130 5 New location layout
6 Select moving company
days 7 Order utilities
8 Purchase network & servers
9 Negotiate lease
10 Pack furniture
11 Pack computer equipment
12 Transport moved items
Here we put tasks in logical order so 13 Unpack
14 Cutover to new network
we can see how long the project takes! 15 Close existing building
Another typical scenario…..
Say…I’m going to
need you to reduce
your schedule by ten
days…that would be Oh no!
great…thanks….
How to respond?
• Ask for a project brainstorming meeting with
sponsoring executives
• Present high level schedule for office relocation
• Ask for consensus of “Best-Case”, “Worst-Case”
and “Optimistic” durations for each element of
schedule.
• Show probability of achieving estimated
schedule, AND
• MOST importantly—show probability of
achieving the requested schedule reduction.
Where
Where are
are we
we now?
now?
Course Contents:
Unit 1 Introduction to Project Management

1.1 Meaning, Nature and Scope of Project and (PM) Project Management, with Petroleum Industry business context
1.2 Objectives, Characteristics & Importance of PM,PLC –Project LifeCycle
1.3 Types of Projects –National and International Projects, Difference between National and International Projects, with
suitable examples
1.4McKinsey 7S’sof Project Management.
1.5 Limitations of PM
Unit 2 Managing various Aspects of Projects2.1Project Time Management: WBS –Work breakdown structure, Gantt
Chart, Arrow on Arrow diagram, PERT/CPM
2.2 Project Cost Management –Introduction to RFP, Invitation to Bid, Tender process, Technical and Commercial Bids.
2.3 Project Quality Management
2.4 Project Risk Management
2.5 Project Completion and Handover –Methods of Project Closure
Unit 3 Introduction to Leadership

3.1 Meaning, Nature, Importance and Scope of Leadership
3.2 Role and Responsibilities of a Leader, Style of Leadership
3.3 Leadership Skills
3.4 Teamwork and Team Building
4 Application of Leadership concept in Petroleum Industry

4.1 Case discussion and analysis
5. Self-Learning Module In this Module, students will search on internet PMI and PMBOK, to understand process
(methodology -Input/Tools and Techniques and Output)
Project
Project Risk
Risk Management
Management
11–79
Just
Just what
what is
is risk?
risk?
11–80
What
What is
is the
the opposite
opposite of
of RISK?
RISK?
CERTAINTY!
11–81
Risk
Risk Requires
Requires Management
Management
11–82
Risk
Risk and
and Project
Project Management
Management
11–83
11–84
The
The alternative
alternative to
to proactive
proactive
management
management is is reactive
reactive
management,
management, alsoalso called
called crisis
crisis
management.
management. ThisThis requires
requires
significantly
significantly more
more resources
resources
and
and takes
takes longer
longer for
for problems
problems
to
to surface.
surface.
Background
Background to
to risk
risk and
and uncertainty
uncertainty..
Risk
Risk as
as aa concept
concept
• Risk originates from the French word Risque.

• Risk can be considered from many perspectives.
Dangerous sports.
Gambling.
Investments.
Entering a relationship.
Getting married.
Definition
Definition of
of risk
risk
• Risk is a measure of the probability and consequence of
not achieving a specific project goal.
• Risk depends on both the likelihood of occurrence
(probability) and the consequences of occurrence
(impact).
• Questions to be asked:
Do the returns justify the risk?
What is the extent of the loss if things go wrong?
Risk is concerned with the ‘known’ (conditions of
certainty), ‘known unknowns’ (conditions of risk) and
‘unknown unknowns’ (conditions of uncertainty).
Example:
Example: Investing
Investing In
In Tesla
Tesla
11–89
The
The Basic
Basic Risk
Risk Types
Types

•Risk origin and impact categories
Risk level Financial and

Strategic risk knowledge risk
Change/project risk Internal and external
Operational risk risks
Unforeseeable risk Speculative and static
risks
Nature of risk: origin,
Risk interdependency
characteristics,
Can overlap!
interdependencies
11–90
External
External Risks
Risks
External risks: may be calculable but not controllable
11–91
External
External Risks
Risks
• External risks: may be calculable but not controllable
• Time-dependent risk: insurance policy expiration
• Competitor risk: new company, product
• Customer demand risk
• Exposure risk: gearing, borrowing; oil producers to oil
prices
• Shareholder risk: (loss of confidence makes it difficult to
raise capital)
• Political risk: home and neighbouring countries, fiscal
policy, UK/Euro
• Legislative risk: change existing statutes, introduce new
one, (e.g. green)
11–92
Internal
Internal Risks
Risks
Internal risks: somewhat calculable and controllable
•Operational process: HR, staff availability, capacity

limit
•Legal risk: contracts, insurance policies – protection
and liability not as perceived
•Liquidity risk
•Supply chain risk: more efficient SC => more
dependent: supplier production continuity, supplier
reliability (quality of products)
11–93
Internal
Internal Risks
Risks
• Competence risk: employee and management

• Complexity risk: modern electronic systems difficult
to understand/interpret quickly
• IT and Technology risk
• People risk: difficult to replace, succession
planning, IPR, expertise=>rival
• Residual risk: after all risk treatment and response;
achieving zero is prohibitively expensive
11–94
Sensitivity
Sensitivity to
to Risks
Risks
Firm sensitivity is function of:
•Severity of exposure to occurrence of events
•Likelihood of events
•Ability to handle events
Questions for risk taker:
•What are possible outcomes?
•Are outcomes related?
•How sensitive are strategies, earnings to occurrence?
•Is achievement of critical objectives affected?
•How capable are we of responding?
•How much potential reward is required to accept risks?
•If we accept to we have sufficient capital to absorb unforeseen
losses?
11–95
Key
Key variables
variables and
and risk
risk..
• Risk is the distribution of possible outcomes in a firms
performance over a given time horizon due to changes
in key underlying variables.
• The greater the dispersion of probable outcomes, the
higher the firm’s level of exposure to uncertain returns.
• These uncertain returns can have either positive or
negative values.
• Therefore both positive and negative changes in key
variables must be viewed as sources of risk.
Distribution
Distribution of
of Outcomes
Outcomes
11–97
Is
Is risk
risk aa good
good thing?
thing?
• Because of the potential for positive outcomes, risk
is a good thing.
• Risk is necessary in order to have an opportunity to
add value.
• Risk breeds innovation.
• Risk is a necessary by product of the creation of
new value in the market place.
Without risk, there is no need for project

managers! (Nobody would ever be paid to
manage things…)
So
So how
how can
can you
you manage
manage risk?
risk?
• It is always unclear what will happen in the future.
• The important questions relevant to risk management
are;
What specific possible outcomes do we face?
Are these outcomes related?
How sensitive are our strategies, cash flow, earnings etc to the
occurrence of future events?
Is our achievement of critical objectives affected by future
events?
How capable are we of responding to whatever may happen in
the future?
Risk
Risk vs
vs Reward…
Reward…
• How much potential reward is required before we are
willing to accept the risks associated with the
uncertainties that we face?
• If we decide to accept the exposures giving rise to our
risks, do we have sufficient capital to absorb significant
unforeseen losses, should they occur.
Exposure
Exposure
• Exposure arises when any asset or source of value is

affected by changes in key underlying variables (i.e.
weather) resulting from the occurrence of a risk event.
• A firm is exposed to risk when a realized change in a
variable within a given timescale will result in a change
in one or more of it’s key performance indicators.
• The greater the potential change in performance
(positive or negative), the greater the exposure.
Sensitivity
Sensitivity to
to risk
risk
A firm’s sensitivity to risk is therefore a function of three

things;
•The significance (or severity) of the enterprise’s

exposures to the realization of different events. (That is
sensitivity to things like changes in competition, weather
conditions etc).
•The likelihood of the different events occurring.
•The firm’s ability to manage the implications of those
different possible events, should they occur.
The
The process
process of
of risk
risk management
management
• Identify the risk.

• Quantify the risk.
• Predict the impact of the risk.
• Evaluate the acceptability of the risk.
Risk
Risk mapping.
mapping.
The process of identification-quantification-impact and

acceptability is also known as;
•Risk mapping
•Risk profiling
•Risk footprinting.
Mice,
Mice, Rabbits,
Rabbits, Lions,
Lions, Sharks
Sharks (oh
(oh my!)
my!)
11–105
Types
Types of
of risk
risk
• Dynamic risk: Potential Gains and losses.

• Static risk: Consolidation and loss minimization.
• Internal predictable risks.
• Internal unpredictable risks.
• External predictable risks.
• External unpredictable risks.
• Again this relates to the concept of ‘known and unknown
unknowns’.
Internal
Internal predictable
predictable risks.
risks.
• Change notices and variations.
• Team member changes.
• Cyclic weather conditions (e.g. construction projects).
• Delays.
• Cost increases.
Internal
Internal unpredictable
unpredictable risks
risks
• Changes in specification and project success criteria.
• Disasters (fire, explosion etc).
• Incompatibilities and design errors.
• Bad coordination and communication between
consultants.
• Exceptional ( non-cyclic ) weather conditions.
• Non-insurable risks (air crashes, ionising radiation, civil
commotion etc)
External
External predictable
predictable risks.
risks.
• Changes in interest rates.
• Changes in exchange rates.
• General level of economic activity.
• Retail price index.
• Specific industry indices.
External
External unpredictable
unpredictable risks.
risks.
• New kids on the block.
• Changes in company corporate strategy
(e.g.environmental management).
• Sudden changes in the competitive environment.
• Sudden changes in statutory requirements (e.g.new
case law).
• Stakeholder fluctuations (e.g.takeover bids and
amalgamations).
• Sudden advances / releases in Advances in technology.
Responses
Responses to
to risk.
risk.
• Classical responses to risk are;
• Ignore it.
• Seek additional information.
• Make more accurate analyses and forecasts.
• Consciously adjust for bias.
• Mitigate the risk.
• Revise the rate of return by adding a risk premium.
• Transfer the risk.
• Accept the risk and go for it.
Tolerance
Tolerance for
for risk.
risk.
• The decision on how to deal with risk generally depends
on the tolerance of the risk taker.
• There are generally three types of tolerance for risk;
• Risk averter.
• Neutral risk taker.
• Risk seeker.
Figure
Figure Risk
Risk response
response
characteristics.
characteristics.
Risk
averter
Benefit
Risk
Risk seeker
neutral
Money at stake
General
General risk
risk response
response matrix
matrix..
High Challenger Innovator
Pragmatic
Which one
Synthesizer are you?
Risk Modifier
taking
Planner
Dreamer
Repeater
Low
Low Creativity High

Specific
Specific risk
risk response
response matrix
matrix..
High
Building contractor Architect
Property developer Lawyer Where

does a PM
Risk fit?
taking
Accountant
Low Doctor
Low Creativity High

Develop High-Level Schedule Based on Executive
Estimates….
2 1 day …
days well..uhm....
3 Hmmm..
days
Compiling the executive
estimates…. Task 8 Task 14
BC ML WC BC ML WC
# # # # # #
Task 1 Task 2 Task 3 Task 9 Task 7 Task 10 Task 11 Task 12 Task 13

10 30 30 5 5 5 5
BC ML WC BC ML WC BC ML WC BC ML WC BC ML WC BC ML WC BC ML WC BC ML WC BC ML WC
7 10 12 25 30 35 25 30 35 # # # # # # 3 5 7 3 5 7 3 5 7 3 5 7
Task 4 Task 5 Task 6 Task 15

10 20 11
BC ML WC BC ML WC BC ML WC BC ML WC
7 10 12 15 20 25 8 10 13 # # #

3 Select location
BC ML WC Result Rounded
4 Inventory current location 7 10 12 9.83 10
5 New location layout 25 30 35 30.00 30
6 Select moving company Compile estimates 25 30 35 30.00 30
7
8
Order utilities
Purchase network & servers
using weighted 7 10 12 9.83 10
15 20 25 20.00 20
9 Negotiate lease average: 8 10 13 10.17 11
10 Pack furniture
11 Pack computer equipment 3 5 7 5.00 5
12
13
Transport moved items
Unpack
BC+4*ML+WC 3 5 7 5.00 5
3 5 7 5.00 5
14 Cutover to new network 6 3 5 7 5.00 5
15 Close existing building
Total 131
Now what do I do with
these weighted averages?
1. Add all estimates of the task durations on the critical
path to find the project overall average estimate.
2. Find the project standard deviation.

Now that’s
3. Calculate the probability of achieving the estimated a nice trick!
schedule—and the requested reduced schedule.
4. Show your boss the duration that gives you a 95%

probability of success!
Because you are using averages—you can

use the normal curve in order to calculate
schedule probability!
Why probability? Why use this
normal curve thing?
1. Things we sample in nature tend to follow
the normal curve (height, age, income, etc.)
2. The probability of falling near the middle

(average of mean), is higher than falling far
from the middle (i.e. “outliers”)
3. If we know the mean (“average”) and

standard deviation (“how wide the normal
curve is”), we can calculate probability.
“Ballparking” the
probability..(for those who
don’t carry a “Z Table” in 1. +/- 1 SD= 68% of area under curve
2. +/- 2 SD= 95% of area under curve
your wallet)… 3. +/- 3 SD= 99% of area under curve
4. The mean is at the 50% area (or probability)
point. (Therefore, starting from 0, +1 SD =
50% + ½ of 68%=84%)
What is the project standard deviation?
How to find it?
So what is the project standard deviation? What
does it mean?
Critical Path Variances Project SD Calculation

BC ML WC Result Rounded BC WC Variance
7 10 12 9.83 10 7 12 0.69
25 30 35 30.00 30 25 35 2.78
25 30 35 30.00 30 25 35 2.78
7 10 12 9.83 10
7 12 0.69
15 20 25 20.00 20
8 10 13 10.17 11
15 25 2.78 Hmmm…..
8 13 0.69 what
3 5 7 5.00 5
3 7 0.44
3 5 7 5.00 5
3 7 0.44
now??
3 5 7 5.00 5
3 5 7 5.00 5 3 7 0.44
Total 131 3 7 0.44
Sum of Variances 12.19
Square Root 3.49
Project Estimated Duration: 131 Days

Project Standard Deviation: 3.49 Days
Interpreting the numbers:
The 131 days estimate is a sum of
4. The mean is at the 50% area (or probability)
averages. It is a mean of expected
point. (Therefore, starting from 0, +1 SD =
times. Therefore, 131 days is at
50% + ½ of 68%=84%)
the center of the normal curve
and represents a 50% probability
of achievement! But what is 95%
probability? 131 +
Since the project SD is 3.49, and (about 1.5) * 3.49=
your boss wants you to reduce by about 137 days!
10 days, the probability of actually
doing that is calculated like this:
-10/3.49= -2.86 SD
Since +/-2SD is 95% area, then the

probability of achieving this is:
100-(50+(95/2))= <2.5%!
What you now get to say….
According to your
We will certainly own estimates, we
do our best to have only a 2.5%
reduce the chance of
schedule 10 days… achieving this….
Hmmmm…. however…
Now don’t you wish

YOU could say this?!
Lessons learned
1. PERT can help you get agreement on the schedule you need to
be successful by using the very estimates of the management
team pushing you for a reduced schedule.
2. The probability of achieving a schedule built using weighted
averages of estimates is only 50%!
3. Schedule reductions from the 50% estimate drop the probability
rapidly (how rapidly depends upon the project SD!)
4. What you really need is a 95% probability schedule. This requires Yay!
adding at least (ballpark) 1.5 SDs worth of duration to your
project schedule.
5. The statistics are easy, and may be done on a white board—right
in front of those executives!
Monte
Monte Carlo
Carlo Analysis
Analysis
http://quantmleap.com/blog/2010/07/project-risk-management-and-the-application-of-monte-
carlo-simulation/
7–126
7–127
7–128
6-129
 Risk Identification
• Brainstorming
• Checklists
• Prompt List-SWOT the PEST Project administration
Technical
• RBS—Risk Breakdown Client
• Stakeholder
Scenario planning/what if analysis Schedule
 Risk Assessment
• Probability/Impact-qualitative (quantitative IF: historical data)
• FMEA-P/I/Ability to detect flaws
• Decision Tree
• Monte Carlo/PERT
 Risk Response (“MART”)
• Mitigate—taking-action (reduce P, reduce I), Mitigation plan=Positive risk = Exploit
• Avoid—Don’t do it!
• Retain
• Transfer—Insurance and contracts
6-130
 Risk Monitoring and Control
• Risk Register (Log: Risk, description, owner, mitigation plan)
 Ranking: P/I or P/I/Ability to detect
• Which? (Lions or Hi P/Hi I or both)
 Change control (Integrated change control)
• Risk response-mitigation plan
• Scope risk
 Lessons learned
• Captured throughout project
• Reviewed at end of project
• Converted into OPA—Organizational Process Assets
• EEF-Enterprise Environmental Factors
6-131
Copyright © 2013 Pearson Education, Inc.
Publishing as Prentice Hall 6-132
7–133
Risk
Risk Management
Management Process
Process
• Risk
– Uncertain or chance events that planning can not
overcome or control.
• Risk Management
– A proactive attempt to recognize and manage internal
events and external threats that affect the likelihood of
a project’s success.
• What can go wrong (risk event).
• How to minimize the risk event’s impact (consequences).
• What can be done before an event occurs (anticipation).
• What to do when an event occurs (contingency plans).
7–134
The
The Risk
Risk Event
Event Graph
Graph
FIGURE 7.1
7–135
Risk
Risk Management’s
Management’s Benefits
Benefits
• A proactive rather than reactive approach.
• Reduces surprises and negative consequences.
• Prepares the project manager to take advantage
of appropriate risks.
• Provides better control over the future.
• Improves chances of reaching project performance
objectives within budget and on time.
7–136
The
TheRisk
Risk
Management
Management
Process
Process
FIGURE 7.2
7–137
Managing
Managing Risk
Risk
• Step 1: Risk Identification
– Generate a list of possible risks through brainstorming,
problem identification and risk profiling.
• Macro risks first, then specific events
• Step 2: Risk Assessment
– Scenario analysis for event probability and impact
– Risk assessment matrix
– Failure Mode and Effects Analysis (FMEA)
– Probability analysis
• Decision trees, NPV, and PERT
– Semiquantitative scenario analysis
7–138
The
TheRisk
RiskBreakdown
BreakdownStructure
Structure(RBS)
(RBS)
FIGURE 7.3
7–139
Risk Breakdown Structure
Level 0 Level 1 Level 2 Level
3 </TBL_COLHD>
Project Risk Management Corporate Organizational stability
Financial stability
Stakeholders History and culture
Financial stability
Requirements
definitions and scope
External Cultural Cultural issues
Political, legal,
regulatory issues
Interest groups, lobbyist
issues
Economic Labor market
Labor conditions
Financial markets
Internal and External Risks
 Internal risks
• Internal risks can be controlled by project managers and
stakeholders.
• They originate from all phases of a project.
• Examples of internal risks are not meeting time, cost,
scope, performance and value of a project due to
technological difficulties.
• Internal risks occur due to failure in customer
relationships. These may be due to failure in key
success factors of a project.

Internal and External Risks
 External risks
• These risks are from sources outside the project.
• Project managers or stakeholders have little or no
control over these risks.
• Physical risks encompass damage by fire, flood, or other
catastrophe, computer virus that infects the
development environment or operational system, and a
team member who steals confidential project material
and makes it available to competitors.

Tools and techniques to identify risks
Risk Source Risk Level

• Brainstorming No of system modules
• Cause-and-effect diagrams Less than 10 None
• Checklists 10-20 Low
• Nominal Grouping Technique 21-30 Medium
• Mind mapping More than 30 High
• Delphi technique
• Lessons learned from similar projects No of System Components
0-3 None
3-6 Low
7-10 Medium
More than 11 High

Partial
PartialRisk
Risk Profile
Profilefor
forProduct
Product Development
DevelopmentProject
Project
FIGURE 7.4
7–144
Defined
DefinedConditions
Conditionsfor
forImpact
Impact Scales
Scales of
ofaaRisk
Riskon
onMajor
Major
Project
Project Objectives
Objectives(Examples
(Examplesforfornegative
negativeimpacts
impactsonly)
only)
FIGURE 7.5
7–145
PFMEA

Risk
RiskAssessment
Assessment Form
Form
Failure Mode and Effects Analysis (FMEA)

Impact × Probability × Detection = Risk Value
FIGURE 7.6
7–147
PFMEA
 RPN is a measure used when assessing risk in a

project. Larger RPN values normally indicate more
critical failure modes or risks.
 Any risk that has an effect resulting in an impact of 9 or
10 would have a top priority to control and mitigate.
Impact is given the most weight when assessing risk.

FMEA
Risk Risks Occurrenc Outcome Detectio RS RPN

ID e n
Will the products 8
1 be delivered? 7 4 56 224
(schedule)
How will the
10
2 quality of 8 6 80 480
(quality)
products be?
How good is the
technical 10
3 4 10 40 400
capability? (schedule)
How is financial 3
4 stability? 4 3 12 36
(schedule)
Will our IP be 1
5 protected? 2 4 2 8
(schedule)
Risk Rating
Rating Description Detail

A Highly Likely Almost 100% probability in
12 months
B Likely Between 10% and 100%
probability in next 10 years
C Possible Between 1% and 10%
probability in next 100 years
D Unlikely Less than 1% probability in
next 100 years

Risk Rating
Rating Description Detail

1 Marginal Facility can provide a normal level of
service
2-4 Serious Facility can provide a normal level of
service with assistance from local
community
5-7 Critical Facility can provide a normal level of
service with assistance from local as
well as outside communities
8 - 10 Catastrophic Facility cannot provide services

Risk Rating
Marginal Serious Critical Catastrophic

High
A1 A2-A4 A5-A7 A8-A10
likely
Likely B1 B2-B4 B5-B7 B8-B10
Possible C1 C2-C4 C5-C7 C8-C10
Unlikely D1 D2-D4 D5-D7 D8-D10

Risk
Risk Severity
Severity Matrix
Matrix
Failure Mode and Effects Analysis (FMEA)
Impact × Probability × Detection = Risk Value
FIGURE 7.7
7–153
Managing
Managing Risk
Risk (cont’d)
(cont’d)
• Step 3: Risk Response Development
– Mitigating Risk
• Reducing the likelihood an adverse event will occur.
• Reducing impact of adverse event.
– Avoiding Risk
• Changing the project plan to eliminate the risk or condition.
– Transferring Risk
• Paying a premium to pass the risk to another party.
• Requiring Build-Own-Operate-Transfer (BOOT) provisions.
– Retaining Risk
• Making a conscious decision to accept the risk.
7–154
Contingency
Contingency Planning
Planning
• Contingency Plan
– An alternative plan that will be used if a possible
foreseen risk event actually occurs.
– A plan of actions that will reduce or mitigate the
negative impact (consequences) of a risk event.
• Risks of Not Having a Contingency Plan

– Having no plan may slow managerial response.
– Decisions made under pressure can be potentially
dangerous and costly.
7–155
Risk
Risk and
and Contingency
Planning
• Technical Risks
– Backup strategies if chosen technology fails.
– Assessing whether technical uncertainties
can be resolved.
• Schedule Risks
– Use of slack increases the risk of a late project finish.
– Imposed duration dates (absolute project finish date)
– Compression of project schedules due to a shortened
project duration date.
7–156
Risk
Risk Response
Response Matrix
Matrix
FIGURE 7.8
7–157
Risk Identification
 Risk averse decision-makers

 Risk seeking decision-makers
 Risk neutral decision-makers

7–159
7–160
7–161
7–162
Specific to firms
 Upper management must ensure that
project managers understand their
project’s role within the context of
organizational risk.
 Because organizations have limited
resources and many projects competing
for these scarce resources, they ask
project managers not to be overly
optimistic in their estimates and forecasts.
 Bad decisions can lead to risks that result
in project delays, late finish dates, budget
overruns, and unmet project goals.

Specific to project managers
 A lack of understanding of risk on the part of management or a project
manager’s wrong perceptions of management’s understanding of risks
can lead to serious problems in projects.
 Project managers may feel that by exposing risks they themselves may
be at risk and that management may suggest more control of the risks
than necessary.
 A project manager’s risk tolerance depends heavily on the visibility of a
project.
• A project manager may accept more risk if a project is highly visible
as success will bring rewards.
• If the project is small and not that visible, taking risks may not be
lucrative, and PMs may take fewer risks.

Specific to stakeholders
 When a client and contractor lay out project goals, risk

tolerances of both the client and the customer have to
be defined.
 Identified risks enable stakeholders of a firm to manage
issues accordingly and be ready to exploit opportunities.
 If a stakeholder possesses some information and does
not share it with a project manager, the performance of
the project will suffer as there may be risks associated
with their actions.

Risk
Risk and
and Contingency
Planning (cont’d)
(cont’d)
• Costs Risks
– Time/cost dependency links: costs increase when
problems take longer to solve than expected.
– Deciding to use the schedule to solve cash flow
problems should be avoided.
– Price protection risks (a rise in input costs) increase if
the duration of a project is increased.
• Funding Risks
– Changes in the supply of funds for the project can
dramatically affect the likelihood of implementation or
successful completion of a project.
7–166
Opportunity
Opportunity Management
Management Tactics
Tactics
• Exploit
– Seeking to eliminate the uncertainty associated with an
opportunity to ensure that it definitely happens.
• Share
– Allocating some or all of the ownership of an opportunity to
another party who is best able to capture the opportunity for the
benefit of the project.
• Enhance
– Taking action to increase the probability and/or the positive
impact of an opportunity.
• Accept
– Being willing to take advantage of an opportunity if it occurs, but
not taking action to pursue it.
7–167
Contingency
Contingency Funding
Funding and
and Time
Time Buffers
Buffers
• Contingency Funds
– Funds to cover project risks—identified and unknown.
• Size of funds reflects overall risk of a project
– Budget reserves
• Are linked to the identified risks of specific work packages.
– Management reserves
• Are large funds to be used to cover major unforeseen risks
(e.g., change in project scope) of the total project.
• Time Buffers
– Amounts of time used to compensate for unplanned
delays in the project schedule.
• Severe risk, merge, noncritical, and scarce resource activities
7–168
Contingency
Contingency Fund
Fund Estimate
Estimate ($000s)
($000s)
TABLE 7.1
7–169
Risk mitigation techniques: Scope
 Specify customer or user acceptance requirements clearly

 Include the customer’s true requirements and eliminate wishes and needs
 Establish a clear change management process including impact assessment of
such changes
 Know the involved technology well before project commitment
 Build a prototype or model
 Test products or systems with users often to uncover problems and manage
expectations
 Define the deliverables clearly

Risk mitigation techniques: Scope
 Define the deliverables clearly

 Anticipate defects in materials, service offerings, products,
systems, software, or hardware
 Anticipate defects and problems during integration
 Anticipate defects in dependent tasks, products, systems, and
services
 Plan well to reduce defects and problems

Risk mitigation techniques: Schedule
 Create a project schedule and strive to adhere to it

 Schedule the most risky tasks as early as possible to allow time to
recover from failure
 Monitor critical and near-critical activities very closely
 Employ the best team members on critical tasks
 Allow and provide incentives for overtime work
 Schedule high-risk tasks and activities parallel to low-risk activities

Risk mitigation techniques: Schedule
 Communicate often to warn stakeholders much ahead of time

about potential schedule problems
 Show urgency and make sure that others understand the urgency
of the problem
 Set deadlines and make sure to achieve those deadlines

Risk mitigation techniques: Cost
 Identify and monitor the key cost drivers

 Redo all cost estimations when doing rework
 Choose low-risk technologies
 Use feasibility studies to understand the cost involved in a project
 Use a proven method for realistic basis for cost estimations
 Use proven technology and “commercial off-the-shelf” equipment,
products, systems, or software
 Use prototyping before the implementation of the actual project to
better understand the costs

Risk mitigation techniques: Resources
 Align best individuals with the requirements to complete a task

 Assign staffing to all tasks and leaving no task unassigned
 Understand commitment levels of all resources
 Understand the role, responsibility, accountability, reliability, and
authority of each project team member
 Establish teamwork and trust among team members

Risk mitigation techniques: Performance
 Decide based on data, good decisions models, and technical

parameters
 Use experts to assess project progress and performance
 Perform extensive tests, research, and evaluations
 Employ the best technical team

Overview
 A risk is an uncertainty such as the possibility of project failure or of

not meeting scope, cost, schedule, resource constraints,
performance factors, or estimated value of a project.
 Risks can be external, internal, positive, negative, or residual.
 Risk management consists of the identification of risks, the
assessment of the value of these risks, the proposed plans to
mitigate these risks, the monitoring of the risks, and the control of
the risks.
 Risks may be identified by project managers and the stakeholders
of a project depending on their acceptable risk tolerance.

Overview
 Project managers or organizations can be viewed as risk averse,

risk seeking, or risk neutral.
 A structured methodology to identify risks in projects is the Risk
Breakdown Structure (RBS) where risks can be categorized and
structured to provide a standard presentation of project risks.
 The most common tools and techniques used for developing a list
of project risks are brainstorming, cause-and-effect diagram,
checklists, Nominal Grouping Technique, mind mapping, Delphi
technique, and lessons learned from similar projects.

Managing
Managing Risk
Risk (cont’d)
(cont’d)
• Step 4: Risk Response Control
– Risk control
• Execution of the risk response strategy
• Monitoring of triggering events
• Initiating contingency plans
• Watching for new risks
– Establishing a Change Management System
• Monitoring, tracking, and reporting risk
• Fostering an open organization environment
• Repeating risk identification/assessment exercises
• Assigning and documenting responsibility for managing risk
7–179
Change
Change Management
Management Control
Control
• Sources of Change
– Project scope changes
– Implementation of contingency plans
– Improvement changes
7–180
Change
Change Control
Control System
System Process
Process
1. Identify proposed changes.
2. List expected effects of proposed changes
on schedule and budget.
3. Review, evaluate, and approve or disapprove
of changes formally.
4. Negotiate and resolve conflicts of change,
condition, and cost.
5. Communicate changes to parties affected.
6. Assign responsibility for implementing change.
7. Adjust master schedule and budget.
8. Track all changes that are to be implemented
7–181
The
TheChange
ChangeControl
Control
Process
Process
FIGURE 7.9
7–182
Benefits
Benefits of
of aa Change
Change Control
Control System
System
1. Inconsequential changes are discouraged
by the formal process.
2. Costs of changes are maintained in a log.
3. Integrity of the WBS and performance measures
is maintained.
4. Allocation and use of budget and management
reserve funds are tracked.
5. Responsibility for implementation is clarified.
6. Effect of changes is visible to all parties involved.
7. Implementation of change is monitored.
8. Scope changes will be quickly reflected in baseline
and performance measures.
7–183
Sample
SampleChange
Change
Request
Request Form
Form
FIGURE 7.10
7–184
Change
Change
Request
RequestLog
Log
FIGURE 7.11
7–185
Summary
 Quantitative risk analysis will help a project manager to

determine the probability of a project that will be
completed on time and within budget and provide value.
 Quantitative risk assessment may be accomplished by
many methods including quantitative risk analysis, data
gathering and representation techniques, simulation and
modeling techniques, and expert judgment.

Summary
 Risk responses are actions to mitigate risks and reduce project

threats. Risk responses include the identification and assignment of
a risk owner whose responsibility it is to take ownership of agreed-
upon risk responses. Risk responses are planned for each risk and
must be effective to mitigate identified risks.
 Once the risks are assessed, risk planning with risk responses can
be accomplished by methods including risk transfer, risk avoidance,
risk reduction, or risk acceptance.
 Risk monitoring and control is a process to manage risks in a
project.

Summary
 Risk management that includes monitoring and controlling risks

should be a part of project management.
 There are tools and techniques that are available to help project
managers monitor and control risks in projects including risk
assessment, risk audits, variance and trend analysis, technical
performance measurement, and reserve analysis.

Key
Key Terms
Terms
Avoiding risk Risk breakdown structure (RBS)

Budget reserve Risk register
Change management system Risk profile
Contingency plan Risk severity matrix
Management reserve Scenario analysis
Mitigating risk Sharing risk
Opportunity Time buffer
Risk Transferring risk
7–189

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Project

Dr. Jim Marion, PMP

• Quick review—network diagrams

• 2.1 Project Time Management: WBS –Work breakdown

1. The assumption that we know the

• Assumes each activity duration has a range that

– (Or, “How many standard deviations?”)

Count number of Standard Deviations!

1. PERT analysis is based on an AVERAGE (i.e. mean)

• “Z” is simply “# of standard

Copyright © Pearson Education, Inc., Allyn & Bacon 2009

• Up to now, task duration was a given

The weighted average activity time is computed by

The standard deviation for the activity:

The standard deviation for the project:

The equation below is used to compute the “Z” value found in

FIGURE A7.2 (cont’d)

=1 Z .00 .01 0.2

0.1 .0398 .0438 .0478

Shaded area 0.3 .1179 .1217 .1255

1. The best estimates from the team produce a

Assume further that the schedule is critical and that company

1.Desktop PC configuration audit

1 Configuration audit ---

2 Bandwidth analysis ---

4 Order computer memory 3

5 Order wireless access equipment 2,3

7 Install wireless access system 5

8 Install memory and wireless cards 4,5

9 Install OS and Apps 6,8

10 Author training materials/guide 6

11 Conduct training 7,9,10

1 Configuration audit --- 5 15 10

2 Bandwidth analysis --- 3 7 5

4 Order computer memory 3 2 5 3

5 Order wireless access 2,3 3 6 4

7 Install wireless access system 5 5 15 10

8 Install memory and wireless 4,5 7 15 10

9 Install OS and Apps 6,8 5 10 7

11 Conduct training 7,9,10 5 10 7

1 Configuration audit --- 10

2 Bandwidth analysis --- 5

3 PC upgrade plan 1 7.2

4 Order computer memory 3 3.2

5 Order wireless access 2,3

6 Order software 3 3.2

7 Install wireless access system 5 10

8 Install memory and wireless 4,5

9 Install OS and Apps 6,8 7.2

11 Conduct training 7,9,10 7.2

1 Configuration audit --- 5 15 10 2.78

2 Bandwidth analysis --- 3 7 5

3 PC upgrade plan 1 5 10 7 .69

4 Order computer memory 3 2 5 3 .25

5 Order wireless access 2,3 3 6 4

7 Install wireless access system 5 5 15 10

8 Install memory and wireless 4,5 7 15 10 1.78

9 Install OS and Apps 6,8 5 10 7 .69

11 Conduct training 7,9,10 5 10 7 .69

Given that the critical path includes task 1-3-

Taking the square root of the sum of the of the

What is the probability of actually achieving a project schedule

What about 41 days?