The benefits of event-based risk management in project execution

Abstract

The management of medium to large complex procurement and integration projects is a difficult challenge. Project decisions at start-up tend to focus on decisions of how to achieve near-term goals and milestones. Stakeholders, as a result, may develop a narrow focus on risks, exposing the project to unnecessary delays, negative financial impacts, and potential damage to the organization's reputation.

Project staff need to focus on what is important to control as opposed to what is easy to control. This can be difficult, as project staff tend to be overloaded by active involvement in a number of simultaneous and critical tasks. The ability to distinguish and integrate the management of key or emergent issues and risks within a project significantly improves the chances of successful project execution. The ability to link these to performance parameters increases cost and schedule confidence.

Event-Based Risk Management (EBRM) is a technique to assist the project manager in overcoming these issues. The goal of this paper is to describe EBRM and to assist the reader in understanding how to use this technique as part of an overall project communication and management approach.

Introduction

Project staff tend to be overloaded as they are actively involved in a number of simultaneous and critical tasks. As a result, project plans are often not read or followed. One consequence is that key or emergent issues and risks within the project may be overlooked. Projects are unique, so there is a tendency to develop a “live with it” attitude towards risk and to consider it as just part of doing business. This ultimately results in projects failing to meet their goals.

Traditional risk management processes typically use a bottom-up method of identifying individual project risks. This has been shown, in practice, to be partially effective. Spending too much time assessing and managing the wrong risk can divert resources that could be used more effectively. EBRM is a technique that facilitates a top-down method of assessing project risk and complements the traditional bottom-up approach. The outputs of EBRM are artifacts that facilitate understanding of the relevant details and the key risks to the project.

The Challenge

All projects face the challenge of how to be executed efficiently while maintaining the required focus on goals and milestones to ensure schedule adherence, enhanced communications, satisfied stakeholders; and overall acceptable risk.

Project staff tend to delay admitting that their project contains risk, as well as delay communicating risk and how to deal with the risk. The tendency is to identify risks that are outside the project manager's control because it's easy. There is also a general lack of understanding and effective identification of the interrelationship and linkage between various risk areas.

It is important that the project manager be able to understand what the key project issues and risk areas are and be able to communicate these effectively to internal and external stakeholders. It is also important for executive management to be able to quickly determine where and when these concerns are active within a project.

Risk management is a continuous project process, as shown in Exhibit 1.

Exhibit 1: Risk management process overview.

A common misconception is that risk management is supplementary to the project management set of processes. A more appropriate approach is to view risk management as core to the overall project management approach. Effective risk management is critical to project success and must be forward-looking and continuous.

EBRM expands on this risk management approach to include the generation of other key artifacts.

Event-Based Risk Management Approach

EBRM is a management technique and should be an integral element of any project. It is equally applicable during the project planning and the execution phases. EBRM offers the following discriminators:

1. Top-down approach to provide the big-picture view, as opposed to a bottom-up approach
2. Event-centric view with a focus on key events/deliverables
3. Inherent schedule analysis to increase the probability of project success
4. Key artifacts that greatly facilitate understanding of the entire project and of the key risks to the project. These artifacts are extremely effective for communicating important project information to both the project team and to other stakeholders, such as senior management
5. Consultative inputs from others who have had similar experiences and leverage of lessons learned

The integration of EBRM into project planning and execution is key to its success and is discussed in the following sections.

The Six Steps to Success

The EBRM process is an iterative process applicable to both the proposal and execution phases of a project. If EBRM was not implemented during the proposal phase of a project, the project manager should consider implementing the EBRM process as soon as possible if for no other reason than to facilitate project monitoring and improve communications with the project team and stakeholders. The six steps to success are:

1. Develop an executive project summary. Provide a high-level view of the project with key activities and milestones identified. This is an excellent project communication tool.
2. Develop a critical event tree. Outline the project's top 20 to 25 events with which the project manager is concerned. The assumption is that if these items are in good shape, the project is in good shape. The critical event tree forms the basis of the risk work ahead.
3. Schedule risk analysis. Assess confidence in the deterministic estimate and schedule of each critical event. The assumption is that if the event is critical to the execution of the project, then it must be in the schedule and its probability of success must be high.
4. Develop a risk tree and risk action plans. Treat each critical event on the critical event tree as if it will not occur. Create risk mitigation strategies and action plans for each event to ensure that they do occur and enter these in the project risk register. All action plans require a clearly identified action owner.
5. Hold frequent consultative sessions. Use review sessions to leverage the skills and experience of the right people to assist in the project. Project managers are encouraged to involve participants from outside of the project. This is a form of using lessons learned and forms the basis of a second opinion.
6. Brief project and external audiences as required. Frequent communications with project stakeholders increases the likelihood of project success.

The EBRM process overview is shown in Exhibit 2.

Exhibit 2: EBRM process overview.

The project risk profile will change as risks are identified or retired, risk parameters change, risk horizons are crossed, and project milestones are met. The project manager is responsible for ensuring that open risks and the process artifacts are reassessed periodically and that the above process steps are activated as required as part of the active management of project risks.

Step 1 – Executive Project Summary

The Executive Project Summary (EPS) is a composite event diagram that captures, on a single page, key events and considerations over the life of the project. This graphic representation provides project managers, project teams, and executive management with a comprehensive overview of a project, no matter how complex, and facilitates a common understanding of project goals. A sample executive project schedule is shown in Exhibit 3.

Exhibit 3: Key components of an executive project schedule.

The EPS has the following characteristics:

1. Illustrates a high-level, single-page view of the project
2. Captures key activities upon which the project is based
3. Depicts “swim lanes” based on how the organization executes a project
4. Identifies significant milestones in the top swim lane
5. Specifies project end date(s) and time remaining

The EPS is an extremely effective tool for communicating important project information to both the project team and to other stakeholders. It also offers the opportunity to shape constructive team dynamics to ensure focus on common goals.

Exhibit 4 shows the concept of the EPS as a project briefing tool.

Exhibit 4: Executive project summary as a project briefing tool.

The project manager's ability to seek agreement on the goals of the project among the key project stakeholders, including the project team, management, and the customer, plays a large part in the project's success. The EPS is a very useful tool in the project manager's toolkit.

Step 2 – Critical Event Tree

The Critical Event Tree (CET) identifies key project events and/or milestones and presents them graphically in a tree structure. The EPS is used to develop the CET. The top-level nodes of the tree are usually the Level Two nodes from the project's Work Breakdown Structure (WBS). The CET should be limited to the top 20 to 25 key project events.

Refer to Exhibit 5 for a conceptual overview of a critical event tree.

Exhibit 5: Conceptual overview of a critical event tree.

These key events are representative of the overall project. If the events in the CET are under control, the project manager can be assured that the project is generally in good shape. The CET may be viewed as a critical subset of events represented graphically from the Integrated Master Plan (IMP).

Each event must have a completion date and must be included in the project's schedule.

The determination of the top project events can be a difficult task and will require review of the project's Integrated Master Schedule (IMS) and consultation with the project team and its stakeholders. The project manager must consider not only the success of the project, but also project outcomes, such as stakeholder success, factors identified during the project context reviews.

Key elements which determine the critical event tree are shown in Exhibit 6.

Exhibit 6: Key elements of a critical event tree.

Step 3 – Schedule Risk Analysis

Many project managers rely too heavily on the Critical Path Method (CPM) to provide the most likely completion date and not enough on their own schedules. Schedule Risk Analysis (SRA) is the application of the Monte Carlo technique to the project schedule. A Guide to the Project Management Body of Knowledge (PMBOK^® Guide)— Fourth edition identifies the Monte Carlo technique as the typical method of modeling/simulating projects (Project Management Institute, 2008). SRA is a proven method to better address the question “What chance do I have of finishing the event on time and within budget?”

SRA ideally requires that the schedule be built using three-point estimates, but this can be modeled based on global or specific assumptions. The principle of SRA is that a large number of schedule simulations are run, and the results of each iteration are statistically analyzed to provide confidence factors in meeting the planned dates of static schedules.

SRAs allow the identification of issues in project or schedule structures, of confidence factors for meeting event dates as planned, as well as of near-critical paths that might not be apparent.

SRAs are completed for each event on the critical event tree. The assumption is that if the event is critical to the execution to the project, then it must be in the schedule and its probability of success must be high. One of the artifacts of the SRA process is the distribution chart plots that predict the finish date(s) of the selected event(s) for each schedule simulation. This will provide the project manager and the project team with an understanding of the likely range of finish dates; the confidence in meeting the target date; and the worst-case completion date.

Other artifacts include the early identification of issues in project or schedule structures, as well as identification of near-critical paths that might not be apparent.

Exhibit 7 details an example of an SRA distribution chart showing the typical distribution of the projected finish dates against the probability of meeting those dates.

Exhibit 7: Sample schedule risk analysis distribution.

In almost all cases, projected finish dates occur later than planned and need to be re-worked to be brought into the target range. SRA is an iterative process. Outputs are fed back into the development of the plan to get to an acceptable level of confidence. For the purposes of the EBRM approach, the goal is to have each event probability in the 80%–90% range.

Performing SRAs on each critical event of the CET gives the project manager better insight into the challenges of the overall project. Although an overall schedule SRA may be performed, individual SRAs on key events allow for detailed insight into the individual events, dependencies on other key events, as well as details that the project manager needs to know to identify where the risks are in meeting the event. Events higher in the WBS tend to have a wider “spread” than lower, individual events. This is an expected occurrence, as the overall schedule probability is based on the aggregate of the individual event probabilities. Refer to Exhibit 8 for a sample SRA distribution chart.

Exhibit 8: Schedule risk analysis distribution chart.

Most projects contain parallel paths that join (or merge) in the schedule, sometimes at the critical events identified. The result is additional risk to that event due to the parallel nature of the paths leading to the event. This phenomenon is known as “merge bias” and is a risk in itself. The project manager needs to recognize and understand any risks due to schedule merge bias. Outputs are fed back into the development of the plan to reduce the effects of merge bias to an acceptable level.

Step 4 – Event Risk Action Plans

The general approach to risk identification for EBRM is to assume that the specific event dates selected will not be met. This is referred to as “breaking the cult of optimism.” This facilitates the difficult questions project managers and staff tend to avoid asking and initiates investigation into the project to find out why schedule dates might not be met.

Each risk identified using the above approach must have an associated action plan to minimize the threat or impact of the risk. There may be more than one approach to mitigating a project risk. Normally, one overarching strategy for mitigating a given risk should be selected. More than one strategy may be selected for implementation; however, the risk may be of such magnitude as to warrant the additional expense of pursuing two or more mitigation strategies.

Once the mitigation strategy has been selected and approved, a detailed action plan must be created to implement the strategy. An action plan outlines a series of specific actions that may be implemented consecutively or concurrently.

Each action plan must contain:

• Action – A comprehensive description of the Action to be taken;
• Actionee – The individual responsible for implementing the Action; and
• Due Date – The date by which the Actionee is to complete the action.

The action plan is to be recorded in the appropriate fields of the risk register, and the risk owner and/or project manager are to ensure that the action plan is periodically monitored and the status of individual outstanding actions is updated. The project manager is ultimately responsible for the active management of all project risks. The project manager is required to ensure the risk mitigation efforts for each risk are included and traceable to the work plan. By including risk mitigation tasks in the project schedule, action plan progress and effectiveness can be reviewed on a regular basis and reported at project status meetings.

The establishment of risk impacts is an iterative process. If the impacts are not acceptable, the project manager must review and exhaust alternatives in an attempt to mitigate the impacts. Alternatives are fed back into the development of the action plan to get to an acceptable level of risk.

Project managers frequently confuse an issue with a risk. This may be a costly error and must be avoided. A risk is in the future and you are planning either to avoid it or to mitigate its effects. An issue is a risk which has materialized and must be dealt with now. Risks with a probability of occurrence above 80% should be considered issues and be included in the project schedule and budget.

Once a risk occurs or is elevated to an issue, it is managed as an issue and closed as a risk. The work associated with an issue must be captured in the project schedule and budget. Significant issues are entered on the event tree in the form of an event. Organizations should have separate processes for both risk and issue management.

Step 5 – Consultative Reviews

There is a very good chance that someone has previously experienced the risk or issue that the project manager or the project team is currently trying to address. The object of this activity is to have experienced people review, identify, develop, and periodically update credible project-level risks. The frequency of review is based on risk criticality, risk trigger, and potential impact on the project, but at a minimum should occur no less than monthly.

Expert advice may be available in other areas of the organization or associations. Reviews leverage the skills and experience of the right people at the right time.

A key element of the EBRM approach is to leverage previous experience and lessons learned.

A large number of project managers operate in an industry where the projects they manage will have similar components and attributes as previously managed projects. Since project managers who work on similar projects will run into similar obstacles, it is advantageous to the organization that they share how they overcame these obstacles. This will ensure that the same mistakes are not repeated at the cost of project delay, budget overruns, and customer dissatisfaction.

Consultative reviews are one of the key value-added benefits that a project management office (PMO) can offer within an organization.

Step 6 – Communications

One of the most challenging tasks that a project manager has to face is making sure that during the project all of the right people are given the right information at the right time. The use of the executive project summary and the critical event tree as core elements of any project communication plan support this.

Benefits of using the EBRM process artifacts include:

1. Presentation of the complete project overview on one slide. Complex projects tend to make verbal communication difficult for nontechnical people and other stakeholders. A properly developed EPS allows for a well-planned, simple, and clear presentation of the project.
2. Spatial relationships of activities with focus on milestones and completion targets. Understanding the highlevel relationship between major events increases confidence in the solution.
3. The ability to quickly focus on key events and status for individuals and organizations that are actively involved in the project, or whose interests may be positively or negatively affected as a result of project execution or project completion.
4. Increased stakeholder alignment and improved stakeholder expectations.

The project manager is encouraged to review and emphasize project goals and key events frequently to the project team and stakeholders. This results in increased credibility of the project manager in the eyes of the customer and executive management.

The Benefits of the EBRM Approach

The implementation of the EBRM approach on a proposal or project is not a difficult task. Experience has shown that the biggest component in its success is the ability to identify and reach agreement on the critical events with the project team and the project stakeholders.

The EBRM approach offers a number of positive and unique benefits. These include:

1. An overview of the project is formulated first. The usual tendency is to force a “deep dive” too early because available scheduling tools make it easy to do so. Without a clearly understood overview of the project, there is an increased likelihood of rework.
2. Key events are identified and agreed to early by the project team and its stakeholders. Project Managers need to position themselves as much as possible to operate with no surprises.
3. Improved risk closure criteria. Risks may remain open in the risk register for a long period if the Project Manager is not certain when a risk is no longer a risk. With EBRM, the risk is closed as soon as the critical event is completed. This is also a convenient opportunity to review the lessons learned associated with the event.
4. The approach is scalable and is equally applicable during the planning stages of a project as well as during its execution. It may also be used to focus on a specific period within a project to address a complex situation.
5. Project scope is better understood by the Project Manager and the project team. Increased likelihood of project success is achieved through understanding what needs to be accomplished and who is accountable for the effort.
6. Improved communications with the project stakeholders, specifically at the executive level, where a simple and clear presentation of the project is required.

Conclusion

Organizations and projects must focus on what is important to control versus what is easy to control. EBRM is a technique that facilitates a top-down method of assessing project risk and complements the traditional bottom-up approach. The outputs of EBRM are artifacts that facilitate understanding of the entire project and of the key risks to the project. The approach also assists the project manager in keeping the project team aligned and focused on the right things to increase the likelihood of project success.