Project Cost Risk Summary
by
Hulett & Associates, LLC
Project Management Consultants
How can we tell when project cost estimates are likely to be overrun?
"Murphy's Law " is not a sufficient explanation of these overruns. Simply adding up single-point cost estimates of project elements will never produce the most likely cost of the project. Although this traditional method is intuitively appealing, it is invariably wrong.
A risk analysis improves the accuracy of project costs by exploring the uncertainties that are in all estimates.
It is the best way to determine a contingency that will protect the project cost from a pre-selected degree of overrun risk.
A risk analysis can identify the main cost risk elements in complex projects to facilitate risk management.
Cost elements that contribute the most to the need for the contingency are indicated in red below. They may require the best managers, the most management attention and perhaps a change in plan to contain costs.
Some favorite, powerful, and easy to use software that performs Monte Carlo simulations of Excel spreadsheets includes:
- Crystal Ball from Deltek, Inc.
- @RISK from Palisade Corporation.
- Primavera Risk Analysis (PRA, formerly Pertmaster) for integrated cost-schedule risk analysis using the risk driver method.
For more information:
David T. Hulett, Ph.D.
e-mail: info@projectrisk.com
URL: www.projectrisk.com
Phone: (310) 476-7699
Cell: (310) 283-3527
FAX: (310) 472-8846
12233 Shetland Lane, Los Angeles, CA 90049
