:AACE CERTIFICATION 2009-2010:

Continuing some readings to research on paper topic risk assessment introduce in different terminology and approached on risk analysis methods compared with the Humphreys book which is currently used for my research on the risk assessment.

Humphreys introduces risk analysis are addressed in the three area :

• Technical risk analysis. Some approaches include : Narrative, Qualitative measures, Risk template, Risk Scoring, Risk Scales and Maxwell Risk Matrix
• Schedule risk analysis. Some approached include : CPM analysis and The highest risk using analysis of characteristic cumulative likelihood curve (S-Curve) by using tools PERT, Monte Carlo Simulation or Latin Hypercube.
• Cost analysis. whether using tools such PERT, Monte Carlo Simulation or Latin Hypercube.
  

Otherwise, AACE Recommended Practice (RP) introduces some methodologies of risk analysis i.e. :

• Expert judgment
• Predetermined Guideline (with varying degrees of judgment and empiricism using scoring mechanisms into complex tables)
• Simulation analysis (primarily expert judgment incorporate in a simulation or analytical model using Monte Carlo simulation) includes approach of range estimating, expected value and parametric model.
• Hybrid Method that combine several or all of the above classes
  

I’d like to brief what is my understanding in which any relationship between the methodology of risk analysis as mentioned by Humphreys and AACE Recommended Practices (RP) as follows :

The term of ‘Expert” Judgment explicitly means that the judgment must have a strong basis in experience and be backed up by competency in risk management and analysis. It means that most methodology of risk analysis whether stated in the Humphreys and AACE RP are to some extend hybrid combinations employing expert judgment to completed the outcome of analysis whatever the methodology used is. However, this method is highly subject to imposing iatrogenic when the judgment is inconsistent or biased.

Predetermined Guideline which is using scoring scale mechanism is employed in the Technical risk analysis. The using of this methodology is actually required to establish the technical risk analysis which use complex table and definition of scale criteria such Risk scale and Maxwell Scale Matrix.. This table as per shown picture below shows how Predetermine Guideline applied include the criteria scale definition of risk parameter and risk scoring template to develop the risk analysis. Otherwise, expert judgment will require to quantify the probability and severity of risk.

Table Scale Definition and Criteria of Risk Parameters

Table Risk Scale Template

The expected value method of simulation risk analysis is started with a list of risks. The probability of occurrence of each risk is estimated. Then the cost and schedule impact are estimated where its most basic form can be expressed as follows :

Expected value = probability of Risk Occurring x Impact if it occurs

This approach is adopted in developing Risk Scale Matrix of technical risk assessment. as per shown on Table Risk scale above Where the severity (Impact) factor of cost or schedule times the probability of occurrence is the risk score (Expected value). This recommend practice then addresses the residuals risks that need to be controlled and managed by a Risk Template method. Further the analysis continue to replace the probability and cost or schedule estimated by distributions that are assigned by the team based on their understanding of the risks. Then Monte Carlo or similar simulation program is run that uses these probability and cost distributions as its input simulation. The simulation’s output is a total cost or schedule distribution along with other data designed to support the decision making process.

In Range estimating method of simulation risk analysis is adopted to develop the highest risk of schedule and cost risk analysis by Humphreys. Further, this approach is used to establish the range of the total project estimate and to define how contingency should be allocated among the critical items. The range estimating method of simulation risk analysis is developed as follows :

1. Identifying the critical item a list of risks
2. Determining the ranges for the critical items include information :its estimated value, the probability that its actual value will not excess its estimated value, its maximum possible value, its minimum possible value.
3. Probability density function for each critical item whether using distributions of triangular, double triangular distribution, standard normal distribution, etc.
4. Contingency determination and probability of overrun using Monte Carlo simulation.
   

Palisades software @5.5 Risk for Excel tutorial shows clearly visualization on how range estimating method developed by using Monte Carlo. It could assess in Web site address http://www.palisade.com/. Well I am just getting the trial license and will run some simulations of cost risk analysis and contingency determination by using RP – Range Estimated next week to complete draft of paper.

# posted by Andy @ 1/08/2010 12:40:00 PM