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7 Lessons Learned About Cost and Schedule Risk Analysis

February 11, 2021 |   | 
Ian Nicholson

Ian Nicholson

There are some things about risk analysis that you only learn through experience. And here are some of those lessons from expert Ian Nicholson.

Speaking at ProjCon 2020, Ian Nicholson, VP Solutions at Emerald Associates shares his lessons, and the things that can go wrong, when conducting cost and schedule risk analysis exercises.

Key Takeaways

1. Have a process for gathering information to go into your model

Risk analysis is a great tool, but the process is more important than the software. You need to make sure you’re getting the right information to feed the model, and that the process is robust and repeatable.

To do risk analysis well, you need buy-in from project teams and management. These key stakeholders need to understand the model and its outcomes so you can bring value to the project.

2.Understand the dependencies between costs & durations

Although schedules and costs are treated as separate items in our control groups, the reality is that a change in one affects the other. This is why project cost growth and project schedule growth are so closely correlated.

“Projects experience 19% project cost growth and 17% project schedule growth”


This is important to understand because the goal of a successful risk analysis is to answer the question: What’s the probability of achieving both our cost and schedule targets? This is the standard against which project success is measured.

Schedules built in isolation can have a poor understanding of the budget constraints facing a project. When one team is focused on completing a project in the fastest way, while another is looking for the most fiscally responsible approach, risk analysis models run into problems.

To accurately predict your costs, you must recognise where costs will be impacted by extended durations.

This is why an integrated approach to cost and schedule risk analysis is so valuable. It takes the notion that there are dependencies between cost and schedule as its premise, upon which a risk analysis exercise is undertaken.

Join Ian Nicholson live and discover the power of Safran Risk in his upcoming webinar

3. Schedules Don’t Reflect Reality

Sometimes, schedules don’t reflect what’s actually going on in the field. When building a schedule, don’t take estimates at face value. Understand who made them and when they were made to ensure they’re relevant to the project and its unique elements.

Benchmarking is an ideal way to anchor your schedule to the realities of bringing a project to life. Never assume that you know better than someone who has been through a similar project.

“A schedule is garbage in, garbage out. A risk analysis is garbage in, toxic waste out!”

— David Phillips

If you want more confidence in the quality of your schedule, perform quality assurance checks. A DCMA 14-point QA check can give you great insight into the quality of your schedule before you build your models, so you can have confidence that you’re not putting garbage into your analysis.

4. Cost Is About More Than The Numbers

Project cost is an area that’s all too often swayed by political and emotional concerns. Some people don’t want to spend money, while others are driven by the passion to complete the project no matter the cost.

You need to be aware of all the elements in play to build a cost schedule accurate enough to serve your needs. Macroeconomic factors, corporate risk, and other “big picture” cost elements bring unnecessary complexity to your cost model. 

Find information that's valuable and accurate. For example, working on a five-year-old estimate to avoid budget concerns and get a project off the ground will come back to bite you in the end.

In fast-tracked projects where you’re not sure what you’re going to build, take steps to define the scope and keep costs from spiralling into uncertainty.

Again, benchmarking is key. Lean on your peers to understand how to navigate cost challenges and avoid the pitfalls.

5. Project Managers Are Optimists

When discussing contingencies and mitigation plans, bear in mind that project managers are generally optimists. They always think they can complete a project on time and on budget. This can lead to a lack of contingency when it comes to mitigation strategies or indeed, contingencies themselves.

This optimism extends when considering uncertainties and their impact. During the interview stage, when people aren’t sure about something, they tend to underestimate the impact it will have.

So, it’s important to either adjust your model to reflect this natural bias or create exercises to recalibrate a project teams’ understanding of this natural assumption.

6. Keep Risk Models Simple

Firstly, use the right tools. Don’t try to do schedule risk in a spreadsheet, or cost risk in a schedule.

Managing both in a single tool, like Safran Risk, allows you to integrate cost and schedule. You can model both together and take the dependencies between them into account.

Take a structured approach. Document your models and information as you go, so if you need to go back 6 months later and update the model, it’s all there and it’s easy to make changes.

Clarity is a key part of getting a project team to buy into a risk analysis. If they understand the mechanisms of your risk model, they're more likely to trust the outcome.

7. Analysts Need To Bring Value To Project Teams

Risk analysis should be neither a chore nor the rain on the parade. These exercises should empower project teams by providing them with opportunities to work better and make the project a success.

You need to make sure you give them good feedback and ownership of their risks. The latter can be achieved, for example, through a Joint Confidence Level (JCL) model. This can empower project teams to choose whether to invest more time or more money in a way that has real impact while remaining at P70.

Make Risk Analysis Valuable To Everyone

By communicating effectively with your stakeholders and facilitating conversations between project teams, management, and finance departments, we can improve the reputation of risk analysis and raise the standard on project management.