Project Risk Strategies: Monte Carlo Simulation - Coursework Example

 Project Risk Strategies: Monte Carlo Simulation Any project to be embarked on has its fair share of risks. Since this is inevitable, it is advisable that when taking up a project, one identifies the risks associated with the project and then mitigates these risks to a level that is adequate to the sponsors of the project and the stakeholders of the project. Managing risks has five strategies employed in order to handle the risks that occur in the implementation of the project include identifying the risks that may come up (Kloppenborg, 2012). The range is not limited, but one is to identify as many risks as possible. The next strategy is carrying out a qualitative analysis on the identified risks. A quantitative analysis is part of the strategies that are used to address the threats that arise from the project. The fourth strategy is incorporating response plans and finally monitoring and controlling the identified risks according to a developed risk management plan. Identifying Risk Identification of risks is simply a process which one determines what the risks that can affect the project, as it is ongoing (Kloppenborg, 2012). The risks are to be documented. This process involves gathering information. Identifying risks is a brainstorming process guided by asking what would go wrong during the project. The can be as many suggestions that are presented and, all stakeholder are to be involved. The project team should then review the project documents in order to come up with more risks that are possible. Reviews should be on useful documents, and each review presents its type of risk. Identifying risks also involves understanding the cause and effect relationship of the events leading to the risks. This can be done by use of flow charts showing movement of money, materials and people various people or places (Kloppenborg, 2012). The other way of understanding the risks is by asking why the risk event occurs. Finally identifying risks involves logging them in a risk register. At this specific point, a risk register will contain the risk categories identified, their potential causes and responses. Qualitative Risk Analysis Qualitative risk analysis is a strategy employed to address threats that may arise due to an ongoing project. Analyzing risks is to separate risks that are classed based on how major they are their need in order to ensure they are managed carefully. A qualitative analysis involves prioritizing the risks by analyzing their probability and their impacts (Kloppenborg, 2012). From the risks identified, they are classed as major and minor risks. Probability is guided by how likely it is that the risk will happen. Impact is based on the idea if the risk happens how it will impact the project and environment. A scale is proposed to categorize the risks. Also, contingency plans for the minor lists are developed (Kloppenborg, 2012). Qualitative risk analysis involves developing a cause and effect relationship. The relationship diagram is drawn up based on understanding the risk as the effect changes with the risk (Kloppenborg, 2012). The probability and the impacts of each risk as analyzed are to be noted in the risk register. Quantitative Risk Analysis Quantitative risk analysis is a process where the effects of the risks acknowledged on the project objectives are numerically analyzed (Kloppenborg, 2012). When doing a quantitative analysis, one should be able to predict the probability of the project being completed on time, as per the budget and covering the scope with confidence. A quantitative risk analysis is taken by a decision tree analysis. This is a diagram and calculation of evaluating the implications of the chain. This is in the presence of uncertainty. It can also be carried out by a sensitivity analysis. This involves using the model to identify risk with a greater impact on the project. The other alternative is using a simulation technique to carry out a quantitative risk analysis. In this case, a project model is set up to translate the uncertainties identified and their risks on the project objective. A simulation uses probability distributions and what is referred to as a Monte Carlo analysis (Kloppenborg, 2012). All this is logged into the risk register. Plan Risk Responses Identification and analysis of risks is followed by coming up with ways of handling each risk identified (Kloppenborg, 2012). This is defined as the plan risk responses. The project team is to get creative when applying this strategy, and more than one response can be suggested for managing one risk. There are other threats that the project team might not see as worth fully eliminating and is only to be reduced to a level that is good enough to the project guarantor and the stakeholders. Plan risk responses include avoiding the risk. This is for risks categorized as threats. It is made possible by changing the project scope or deciding to not perform the project. One can also decide to transfer the risk for risks categorized as threats. This can be done by taking insurance or hiring an expert. Some risks classified as a threat can be mitigated by lowering their probability or using methods that are reliable. Other risks can be accepted. There are risks classified as threats or opportunity, and one can deal with them when they occur or establish their triggers that are to be updated carefully. Some risks can be researched. They are risks classified as threats or opportunity. One needs to get more information and verify assumptions. Risks categorized as opportunity can be exploited by assigning necessary resources to the project or giving the project more emphasis. Other opportunity risks can be shared, and this is by allowing partial ownership or joint venture. Opportunity risks can also be enhanced, and more resources can be added and key drivers identified and maximized. This is noted on the risk register. Monitoring and Controlling the Risks The risks for any project have been identified, and the last part of the strategy for handling the risks is the monitoring and the controlling of the risks. A detailed risk register makes this part easy on the project team as the project is implemented. Project Schedule Management Project schedules are developed to enable project implementers undertake a particular project as efficiently as possible for them to attain the desired objectives of the project. Throughout the ages, a legacy of delayed or incomplete ventures in early projects has necessitated the need for systematic methods through which projects can be scheduled. For instance, the Program Evaluation and Review Technique (PERT) and the Critical Path Method (CPM, developed in the 1950s, abide by the concepts of determining a logical order and estimating their durations; concepts that are still followed today (Kloppenborg, 2012). Developing a schedule by which a project is to be implemented is a difficult undertaking. Even harder, though, is being able to adhere flawlessly to these laid out schedules. During the development of the project schedule, the workflow is envisioned together with any possible constraints, delays and resource availability. Under an ideal scenario, the project’s timeline would accurately abide by this schedule but this is often not the case. More often than not, projects are never completed in time. For this reason, considerable effort and resources are channelled towards the preparation of realistic and accurate estimations for cost and duration of the project. The Two-Pass Method One of the common techniques used to improving the accuracy and reliability of the project schedule is the Two-Pass method. This technique helps to determine the potential slack that each activity may have. The first pass, known as a forward pass, refers to a critical path technique used to settle on the early start and finish dates of the project schedule by looking at the schedule model and working forward from there. Here, the project team begins at the start of the project and makes time estimates for each activity. The backward pass is also a critical path technique used to determine late finish and start dates by starting from the end working backwards while estimating how late each activity can commence and end (Kloppenborg, 2012). This technique best applies in situations where one activity or milestone of the project has a fixed date or deadline. The forward pass, for instance, would be suitable where the project team intends to determine an accurate finish date of a project or a particular activity, having already known the date of commencement of the project. In similar fashion, the backward pass would best be adopted where the project team needs to find out how late a project can begin if a particular milestone or output is expected on a later fixed date. This can be a report or a project commissioning exercise that is due on a specific date. One of the limitations of this technique in project scheduling lies in the fact that it does not have contingencies in the event that an unforeseen lag arises due to resource unavailability. On the other hand, this technique is suitable for those scenarios whereby key stakeholders have imposed dates and timelines on the project. It can also be advantageous where the project manager wants an idea of how much time and resources each activity would take in order for him to know when and where to maximise their time and attention. The Enumeration Method This method of determining the critical path involves a person listing all of the paths to be taken through a network. Under this method, all the paths are determined and time estimates given for each path. Attention is paid to both the critical path and other near-critical paths hence any need to condense the schedule is made easier. In the case where several paths of project implementation are identified, and the time duration for each path is obtained, this method may be helpful in helping the project team keep track of all the paths in the event the project schedule needs to be condensed. Unlike the Two-Pass technique, this method highlights several paths through which the project can be undertaken, and this provides a contingency plan in the event that unforeseen events arise during the implementation process (Kloppenborg, 2012). Monte Carlo Simulation The Monte Carlo Simulation is the process by which numerous performance possibilities are generated based on distributions of probability for schedules and costs for each activity under the project. These possible outcomes are in turn used to deduce an overall distribution of probability for the entire project. This technique bests the PERT method whereby a vast range of time estimates can apply to any of the activities. The main concept of this simulation is that it informs the project tea, based on how they came up with the range of estimates, the likelihood of what the resulting outcomes will be. Such simulations engines are incorporated into computer software such as Microsoft Excel. The main advantage of using simulations is seen in the accurate estimates generated as well as the vast information that it provides concerning individual tasks, and the numerous paths generated that may be critical. The major setback, however, lies in the fact that a significant amount of time is needed to estimate not only the most likely duration, but other possibilities as well. A lesser disadvantage perhaps is that considerable skill and expertise is needed though students and workers alike are nowadays adopting their use more and more (Kloppenborg, 2012). References Kloppenborg. T. J. (2012). Contemporary Project Management: Organize/ Plan/ Perform. Cengage Learning. USA. Read More