It’s crucial that project risks are identified and communicated effectively in order to minimize their impact. Accurately communicating risk to stakeholders, who may not understand the subject as well as industry experts, is key to ensuring mitigation decisions can be made.
But risk is complicated. Project controls professionals understand the probabilistic impact of risk using quantitative risk analysis, but this often outputs data in terms that business owners won’t understand. When it comes to seeing the impact of risk on a project, a business person wants to know the immediate effect on the factors they care about – namely, cost and time. Because of this lack of clear communication, smart ways to save on these areas are missed.
That’s why David Hulett developed a methodology called sensitivity analysis by exclusion, designed to help customers identify and communicate risks and set the stage for mitigating them.
The Problem with Traditional Risk Analysis Tools
Individual risks in project management are correlated with cost and time. But correlation isn’t a concept that creates action, and therefore isn’t something most project owners understand. They want to know how a risk directly impacts them – how many days they’ll save on the schedule by mitigating a particular risk, to determine if it makes economic sense to do so.
Typical sensitivity analyses report which risks, or more likely, which activities are correlated with the project's finish date during a Monte Carlo simulation. Rather than learning about project risk through correlation, project owners need to have risk impacts delivered in a way that makes sense to them, that allows them to make major decisions based on the cost of the project, or the schedule. Prioritizing risks by how many days would be saved if the risk were completely mitigated (eliminated from the project) facilitates effective risk mitigation.
Traditional risk analysis tools typically present information that is open to interpretation (and therefore additional analysis). Safran Risk automates that additional analysis to reduce the ambiguity in the output and does so in a way that eliminates human-error and enhances the quality of the output.
The Benefits of Sensitivity Analysis
Safran Risk’s sensitivity analysis outputs information in a way project owners can understand and use to their benefit. The risks involved in major projects are often complicated, and there will always be residual risk in a project even after risk mitigation. But the idea is to give project owners a program of risk mitigation that identifies the most important risks that need their immediate attention.
The software contains a wide variety of risks. The repetitive simulation of the risk-loaded schedule by taking a risk out, recording the results (for example, the P-80 finish date), then replacing the risk and simulating again and again, taking only one risk out for each run, allows you to see the impact of each risk as if it were fully mitigated. Identifying the risk with the greatest impact if it were removed allows that risk to be eliminated and another series of risk-removing simulations to be run to find the second-most important risk.
Repeat this sequence until all risks have been identified and eliminated in order of their importance to the schedule risk of the project. While it’s not realistic to mitigate all risks, the sensitivity analysis gives you a strong approximation of the risks in order of importance to mitigate. You can also use this approach in tandem with Safran Risk's probabilistic approach to the successful execution of actions to assist with cost-benefit analysis of pursuing opportunity (and threat mitigation) proposals.
Of course, Safran Risk performs all of the standard sensitivity analyses, but those are mostly on activities, not risks, and use correlation which is difficult to explain to management. Promising a lower correlation doesn't help answer the questions regarding the 'days per dollar spent' metric that management needs to make decisions.
What’s in the Webinar?
Safran’s Richard Wood discusses sensitivity analysis with Dr. David Hulett, taking look at his unique methodology for sensitivity analysis, and the software that helped automate the process. You can expect:
- A detailed look at the benefits of sensitivity analysis
- An explanation of the process behind sensitivity analysis
- Chris Ritson showcases the software in action
Listen to the webinar with David Hulett by watching the video below. Alternatively, to find our more about how Safran Risk allows for full sensitivity analysis, visit our website.
Discover More About Sensitivity Analysis
Conveying risk outputs in a way that makes sense to project owners is the key mission behind sensitivity analysis. Making risk understandable makes it possible to mitigate, strategize against, and combat project risk.
The sensitivity analysis methodology outlines recommendations in a way that’s easily digestible. It outlines risks clearly and orders them in terms of importance, helping you understand which risks are actually worth mitigating. Utilizing the pareto principle, it’s possible to identify where mitigating a risk will have the biggest impact on your project.
Sensitivity analysis is a powerful tool for presenting the effects of risk on a project to your stakeholders in a way that matters to them.