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Integrating Schedule & Cost Risk Analysis

January 28, 2021 |   | 
3 minutes read
Fernando Hernandez

Fernando Hernandez

Why do so many projects miss their duration and cost estimates? There are many factors, but a lack of integration between cost and duration could be leading you down the wrong path.


The Classic Approach

Many projects begin with engineers putting together a schedule, exploring risks and uncertainties, running Monte Carlo simulations, and interpreting the results that come out of that exercise.

This information is passed to the Finance Department, who use it to explore their risks, run simulations, and create a budget schedule.

Working in silos in this way raises several issues that can negatively impact your project outcomes:

  • No unified objective. One team wants to get the project done as fast as possible. The other wants it done as fiscally responsible as possible. With no unified goal, you end up with two schedules with widely different agendas.
  • Results of simulations don’t take cost or duration factors into account. When performed in isolation, it’s easy to miss key factors that relate to the other team.
  • No understanding of interdependencies. Changes to duration affect cost and vice versa. Without an integrated approach, it’s impossible to understand the relationships and opportunities that exist between cost and duration.
  • Duplicated workload. Put simply, you have to do two risk analyses. This means duplicating risk and uncertainty exploration, Monte Carlo simulations, and duplicate interpretation. This costs time and money. Then you must reconcile them, which can often be a serious challenge.


The Integrated Approach

Time is money, which is why integrating cost and schedule risk analysis makes logical sense. Resource cost is likely to go up if an activity takes longer than planned.

An integrated approach to cost and schedule risk analysis takes these two activities and combines them. Engineers and finance team members work together from the start to create a quantitative risk analysis that reflects the impacts on both schedule and cost at every iteration.

Because both cost and schedule are solved in the same simulation, you can analyse the two objectives together. Doing so allows you to answer 3 important questions:

  1. How likely is the project to finish on time and within budget?
  2. How much contingency is needed to provide a reasonable level of confidence of making cost, schedule, and the two objectives combined?
  3. Which risks are the cause of overruns and the need for contingency of cost and schedule?

Risks to cost come from multiple sources including uncertain project duration, which is often ignored in cost risk analyses. When an activity runs over duration, it has an impact on cost because that activity is attached to a fixed or variable cost in your schedule. Change one, change the other.

If you can’t see the schedule risks that are driving cost risks, you won’t have a complete understanding of the factors that are impacting your project outcomes. Integrating schedule and cost reduces uncertainties, which allows you to allocate a more accurate contingency to your project.

Advantages Of Integrating Schedule & Cost

  • A single rational exercise. Integrating schedule and cost means you only have to do this exercise once, with one team. It encourages people to think about schedule and cost simultaneously, bringing together engineers and finance people from the start.
  • See the compound impact of uncertain durations both on deadlines and total cost. This allows you to explore mitigation strategies and resource allocation schemes with greater accuracy.
  • Understand how the risks to overall cost and schedule are related. Risks to cost usually contain risks that drive costs because they drive schedule. Identifying these risks is the key to creating effective mitigation strategies.
  • Identify bad assumptions early. By integrating schedule and cost, it’s easier and faster to identify overruns, unrealistic plans, and areas where more information is needed. Not only does this make your risk analysis more proactive, but your outputs are also more accurate from the beginning.
  • Risks, activities, and budget lines are correctly prioritized. By working together, engineers and finance teams optimize both their own processes and the project at large.

Safran Risk Makes It Easy To Integrate Cost and Schedule Risk Analysis

There are too many uncertainties in complex projects for a Monte Carlo simulation to give a completion date or exact final cost.

An integrated cost-schedule risk analysis helps determine how likely a project will go over time or budget, how much contingency reserve is required to achieve a desired level of certainty, and which risks are driving the project.

This allows project managers to mitigate the risks that actually impact cost or duration, rather than just the riskiest items in the schedule.

Tools like Safran Risk simplify what would otherwise be an extremely complex procedure into a step-by-step process. Project managers can deploy quantitative risk analysis across their projects and deliver better project outcomes by integrating cost and schedule into a single view.