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.
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:
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:
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.
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.