Integration of Schedule and Cost Risk Models

Robert V. Wendling and Randal B. Lorance P.E.

Introduction
Objective
Integrated quantification / presentation of time, resources and costs required to achieve a business objective

Techniques for Analysis and Presentation

Complete picture of all possible time / resource and cost outcomes Monte Carlo simulation

This presentation examines the integration of schedule and cost simulations

Integrated Risk Analysis Software Features

Commercially available packages
Requires schedule to be fully resource loaded Meaningful and useful results when level of project definition is at Class 2 or 1 Activity Based Costing estimating packages can move resources directly to schedule

Integrated Risk Analysis Software Features

Timing
Investment decisions made with less project definition than required for Class 2 or 1 estimate Not enough definition to meaningfully use existing software packages to integrate cost and schedule

Solution
Run cost and schedule simulations separately Use other techniques to assure consistency between the separate analyses

TYPICAL PROJECT SEQUENCE OF ACTIVITIES

PROGRAM AFC
Screening Phase Conceptual Phase Definition Phase Design & Construction Phase
Proje ct AFC Project Control Approval Esti m ate & Schedule Preliminary Engineering otes Write & Recieve budget qu Approve Major Equip. & long l ead items. AFC Commitment for long l ead ite ms Write & Approve AFC Vendor Engr. Equipment & bulks procurement & manufacture Detail Engineering Comme rcial Sale Mechanical Completi on Conceptu al Phase AFC Ap proval Screen Esti m ate & Schedule Feasib ility Stud ies for Screen ing Estimates Write & Approve AFC Exploration & Reservoir Eng.
Initial New Business reservoir engr . Ventures assessment

Definiti on Phase AFC Ap proval Conceptu al Esti m ate & Schedule

Conceptual Studies & Engineering

Composition Prod. rates Final over time reservoi & produ ct r Specs. engr. in put
Cont inued Reservoir Engr.

Oper. Input freeze Opera tions inpu ts to P&ID's, equip ment layou ts, & maj . equip. purchase specs.

Construction

Commissioning

Marketi ng / Contracts Negoti ations

Finalize Negotiation High e nd of accura cy range +60%

80% Co nfidence Interval

+100%

T rending
Trending from coneptual est imate & schedule t o reflect dec isions made during prelimi nary engineer ing (Screeni ng +30% or bet ter quality estimates.)

Exec ution Tr ending

Trending f rom the control esti mate & sc hedule

+15%

Current Estimate
-20% -40% -50% Low end of accura cy range -13%

+8% -8%

RBL 12/97

Integrated Risk Analysis Software Features

Features
Inputs (probability distributions) can influence: Duration of activities Unit rate costs Resources required Schedule logic Relationship lags

Integrated Risk Analysis Software Features

Limitations
Schedule simulation software: A single variable not easily assigned to multiple terms: i.e., Total project labor productivity Construction season impacts Same distribution can be applied to all resources or to all lag factors

Integrated Risk Analysis Software Features

Other considerations
Identifying specific cost items Requires inputting a distribution for each resource used for each activity Management confidence Due to complexity, a function of estimators and schedulers expertise and relationship with management

Quality / Accuracy of Models

Accuracy Range
Similar, if not identical, for each estimate class

Development consistent
Level of project definition Purpose Preparation effort

Monte Carlo simulation

Analysis of results shows the quality attained vs. the quality sought (expected accuracy ranges)

AACE - Process Industry

Preliminary Characteristic LEVEL OF PROJECT DEFINITION
Expressed as % of complete definition

Secondary Characteristic EXPECTED ACCURACY RANGE

Typical variation in low and high ranges [a]

ESTIMATE CLASS

END USAGE
Typical purpose of estimate

METHODOLOGY
Typical estimating method

PREPARATION EFFORT
Typical degree of effort relative to least costs index of 1 (b)

Class 5

0% to 2%

Concept Screening

Capacity Factored, Parametric Models, Judgment, or Analogy Equipment Factored or Parametric Models Semi-Detailed Unit Costs with Assembly Level Line Items Detailed Unit Cost with Forced Detailed Take-off Detailed Unit Cost with Detailed TakeOff

L: -20% to - 50% H: +30% to +100%

Class 4

1% to 15%

Study or Feasibility

L: -15% to -30% H: +20% to +50%

2 to 4

Class 3

10% to 40%

Budget, Authorization, or Control

L: -10% to -20% H: +10% to +30%

3 to 10

Class 2

30% to 70%

Control or Bid / Tender

L: -5% to -15% H +5% to +20%

4 to 20

Class 1

50% to 100%

Check Estimate or Bid / Tender

L: -3% to -10% H: +3% to +15%

5 to 100

Notes: [a] The state of process technology and availability of applicable reference cost data affect the range markedly. The +/- value represents typical percentage variation of actual costs from the cost estimate after application of contingency (typically at a 50% level of confidence) for given scope. [b] If the range index value of "1" represents 0.005% of project costs, then an index value of 100 represents 0.5%. Estimate preparation efforts is highly dependent upon the size of the project and the quality of estimating data and tools.

Typical Sequence of Activities

Illustrates one way investment decisions are made
Three phase approach Screening Conceptual Definition Must complete steps in each phase to achieve specific quality (expected accuracy range) levels Level of risk reduced and quality improved as more activities are accomplished

Model Building Sequence

Begin early in each phase
Subsequent models use the basic elements of previous phases model, and refine inputs based on additional work and new expert information

Develop skeleton before team asked to contribute

Inputs on sequence of work for completing deliverables Inputs on ranges, terms and variables for resources Avoids anchoring

Develop ranges before work starts

More accurate subjective estimate

Model Building Sequence

Reviews
Conducted at end of each phase model builders / experts assess whether anticipated phase activities were completed as contemplated adjust ranges, if necessary

Re-run simulations for final analysis

Analysis of Results
Prior to integration
Separate simulations must be consistent Plan on time consuming, difficult effort Re-run models

Present separate cost and schedule simulations simultaneously

Manage contingency in similar manner Distribute contingency based on sensitivity analysis Include as part of expected costs and duration Use simulation to develop draw down schedules

Schedule Simulation Results

% 100 8 90 7 80

6 70

60 %

50

40 3

30 2 20

1 10

0 20 NOV 95
LATEST 29 JANDATE 96 EXPECTED 24 DEC 95 DATE EARLIEST 20 NOV 95 DATE TARGET 19 DECDATE 95 Plot Date 12FEB99 (c) Primavera Systems, Inc.

0 27 NOV 95 4 DEC 95 11 DEC 95

CNMCMPRJ.MC

18 DEC 95

25 DEC 95

1 JAN 96

8 JAN 96

15 JAN 96
Date

22 JAN 96
Sheet 1 of 1

29 JAN 96
Sample Schedule
Revision Checked Approved

AEB AUTOMOBILE COMPANY CURRENT FISCAL YEAR PROJECTS Title Finish Date of Project

Cumulative Probability Overrun

55 50 45 60 40 35 30 25 + 15% 20 15 10 -13% 5 0 S pec ified m ax im um ac c urac y range -5 40 -10 -15 -20 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 35 + 14% A c hieved ac c urac y range 50 65

53

55

D u ratio n

47
-7%

C ontingenc y 11%

44

45
Bas e

4 2 .5
Du r a tio n

P ro b a b ility o f O ve rru n (% )
S pec ified C onfidenc e Interval

(M onths )

Cost Simulation Results

% 100 11 10 90 9 80

8 70 7 60 % 6 50 5 40 4

30 3

20 2

10

0 1.7 1.8 1.8 1.9 2.0 2.1 2.2 2.2 2.3 2.4 2.5 2.6 2.6 In millions

Cost
MAXIMUM 2521439 COST EXPECTED 2104537 COST MINIMUM 1752262 COST TARGET 2062998 COST Plot Date 12FEB99 (c) Primavera Systems, Inc.
CNMCMPRJ.MC Sheet 1 of 1

Sample Schedule
Revision Checked Approved

AEB AUTOMOBILE COMPANY CURRENT FISCAL YEAR PROJECTS Cost Probability Graph 1

Date

Percent Frequency

Probability

Cumulative Probability Overrun

50 45 40 35 30 Add to Base + Escalation (%) 25 20 15% 15 10 5 -13% 0 -5 -10 -15 -20 -25 Specified maximum accuracy range 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 Probability of Overrun (%) Cost in Millions

299.3 279.3 259.3 239.3 219.3 199.3 179.3 159.3

248.7
10.40% -7.50%

225.3 Contingency 6%

208.4

Specified confidence interval

Analysis of Results
Integrated simulation
Graphically depicts interrelationships between cost and schedule components

Graphical Presentation
Confidence interval Outline of envelope around the specified % of cost/time pair outcomes Range Between the upper and lower curves Most likely outcome Horizontal / vertical intersection of locus of pairs

Integrated Cost and Schedule

2.6 2.4 2.2 2.0

1.8

1.6 In millions

Cost

1.4

1.2

1.0

0.8

0.6

0.4

0.2

0.0 1 APR 94 1 MAY 94 1 JUN 94 1 JUL 94 1 AUG 94 1 SEP 94 1 OCT 94 1 NOV 94 1 DEC 94 1 JAN 95 1 FEB 95 1 MAR 95 1 APR 95 1 MAY 95 1 JUN 95 1 JUL 95 1 AUG 95 1 SEP 95 1 OCT 95 1 NOV 95 1 DEC 95 1 JAN 96 1 FEB 96

Time
LATEST 29 JANDATE 96 EXPECTED 24 DEC 95 DATE EARLIEST 20 NOV 95 DATE TARGET 19 DEC 95 DATE Plot Date 12FEB99 (c) Primavera Systems, Inc. MAXIMUM 2521439 COST EXPECTED 2104538 COST MINIMUM 1752263 COST TARGET 2062998 COST Maximum Expected Minimum
CNMCMPRJ.MC Sheet 1 of 1

Sample Schedule
Revision Checked Approved

Date

Cost-Time Envelope 1

Sensitivity Analysis
Concentrates on inputs most likely to improve quality (accuracy) Identifies most promising opportunities where additional work will help to narrow input ranges Methods
Run multiple simulations Use criticality index Tornado or Pareto graph

Sensitive Analysis
Cost simulation software
Generally provides adequate visibility

Schedule simulation software

Generally provides only criticality index Need to run simulation multiple times for impacts Present results as torpedo or Pareto chart

Conclusions
Integration of schedule and cost simulations requires
Capable software Class 2 or 1 level of project definition Resources to be estimated: With sufficient detail Identified with specific activities Loaded into schedule model

Conclusions
Early phases simulation integration
Use best software available for each simulation type Run multiple simulations to correlate and adjust inputs for consistent results Assure time dependent estimate variables consistent with schedule Material volumes and productivity variables consistent Similar confidence (accuracy) ranges, contingency definition and allocation are consistent,