Risk Based Estimate: Keep It Simple...

Abstract

The project cost and schedule estimate is a very subtle effort that needs to be repeated throughout the entire project’s life. The relatively new method of including risk events into the project cost estimate makes this effort more sensitive to subtleness. The authors have noticed during their work with other professionals that it is a tendency to make the processes of cost risk analysis (Risk Based Estimate (RBE)) more complicated than they should be. The authors call this tendency as “professional sophistication” when the RBE includes too many activities, too many uncertainties, and too many risk events. The “professional sophistication” usually is detrimental to the entire cost and schedule risk analysis and it constitutes a significant source of the analysis’ failure. The paper presents few cases when so called “professional sophistication” led to the initial analysis failure and if not caught in time to the project cost and schedule misrepresentation. The paper presents the reasons why the “Keep It Simple Smarty (KISS)” principle is critical for a robust and reliable cost and schedule risk analysis. The papers evaluate the impact of having too many variables included into RBE. It makes recommendation about the optimum number of variable that may be incorporated in the cost risk analysis. The ultimate recommendation is about being sure that the Risk Based Estimate includes only the uncertainties or risk events that may change significant the project cost or schedule.