Risk Mapping to Primary Constraints: Mapping Risks to the Cost Constraint

This month’s column provides a continued discussion about ensuring risks are documented and analyzed along one of the primary project constraints to improve overall success of the project:

  • Scope,
  • Time,
  • Cost, or
  • Quality

The mapping of risk potentials to project constraints immediately benefits the project by allowing the project resources to be applied with a better understanding of their effective utilization on achieving the equilibrium of the constraints needed to produce contracted deliverables. The mapping of risks to the primary constraints of scope, time, cost, and quality support the project’s goal of producing the defined “fit-for-use” deliverables within the expectations of the business sponsors. This column focuses on the mapping our risk potentials to the cost constraint using the approved budget as the cost baseline.2013-09-16_134855

The Figure 1, initially in the lead-off article of this series, shows the relationships of these five primary constraints and where cost aligns with the other constraints. Notice that the entire project sits in a bubble of risk since most of a project’s activities are focused on the future progress of a project not its past or present.

Google articles on reasons projects fail include inaccurate cost estimation as one of the reasons projects get into trouble.  Many times a project manager (PM) walks in to a project with a predetermine budget, pre-set deliverables and a set timeframe to work with forcing him/her to manage the project knowing these constraint parameters have been previously determined.   In other cases, the PM comes into the project well before the constraints and assumptions are established as would be during the initial project chartering or instantiation phase.  As we have seen on many projects where the PM is assigned late or arrives later in the project’s maturity cycle, risks have not been analyzed to know where “the alligators” are lurking, but we know they are there.

While there are several approaches to cost estimating for project tasks, in all cases, and we mean ALL, the first step before any cost estimations can be attempted is to have the completed, and approved work breakdown structure (WBS) in place in order for the WBS to drive the cost estimating process. Without the WBS, any work effort involving the estimations for project tasks or summary tasks will be most likely wasted effort. The WBS is the foundation that supports all project work definitions, work coverage, and tasks alignments; thus, without an approved WBS, a cost estimation process that results in an initial first draft budget would be pure fantasy. However, I have seen many projects where this is precisely the out-of-sync steps taken with usually disastrous results.

As the work packages are defined by the WBS, the project constraints can now be considered: scope, time, cost, and quality.  Each work package is in itself a sub- deliverable to the project.  Why then do so many projects skip this step of laying out the WBS before other planning activities are started is a topic for another article, but without the WBS the mapping of constraints to risk is unproductive in the best. So, did I make it clear that the WBS must be completed first?

Tasks as defined in the project schedule, and tied to a calendar, can now be assigned budgetary values via the cost estimation process that will support the tracking of these constraints over time. This is exactly why when added to the schedule, cost can now support the “temporal- phased” cost baseline or budget.

Once the cost estimates are entered into the schedule as determined by the “temporal-phased” budget definitions, the cost constraints can now be mapped to identified risk potentials, or they, the cost estimates, will generate their own series of risk potentials as the budget is allocated across the project tasks. It is this allocation process that will begin the mapping of the cost constraints to the project risk potentials. A secondary part of mapping of the cost constraints to the project risk potentials is to adjust your schedule if necessary. Failure to adjust project schedules and budgets for now identified costing issues almost always guarantees slippage and overruns. This is why quantitative analysis should always be assessed prior to the qualitative assessment of risk potentials.  PM’s need to inform the sponsors of the project possible additional time allocations or budget overruns.

The financial analyst working with the PM, Risk Manager (RM), and Scheduler is now in a significantly more informed position to determine where the cost components are going to cause risks to the project deliverables. Without the alignment of the cost estimates per task in the project schedule, the ability to uncover cost constraint problems (risks) is significantly hampered. Cost estimates without being associated with tasks which are now in the schedule and assigned resources, do not provide valuable information to the PM or RM which in turns does not reduce the uncertainty surrounding the budget decisions that will be forthcoming as the project matures.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s