Risk / Uncertainty In SEER and Project Management

March 2, 2009 · Filed Under Estimation Process, Hardware Electronics Systems Estimating, IT Estimating, Risk, Software Estimating, Systems Estimating, Systems of Systems Estimating  - 1 Comment(s)

The question was asked “what probability should I estimate at”  The answer follows: Risk is really uncertainty.  So the question becomes how much uncertainty can or should I allow in my project plans.  There are many approaches to this, depending on circumstances including:

What are the consequences of an overrun:  Many large military type programs in the US budget at a 70% or 80% probability.  These kinds of programs are generally large and not well defined at the early planning stages.  They use the higher probability so they don’t have to go back for more budget or schedule as the program progresses.  These programs will generally manage to a 50% probability, using the overage as a buffer for program growth.

Is The Project Fixed Price:  Many programs that must bid on programs at fixed price will initially estimate at a probability like 80% so that they are covered if the project becomes more complicated than their initial looks.  Of course competitive issues may cause them to bid lower.

Is this an in house Project: Many projects will plan at a 50% (most likely) probability.  This allows them to have a tough but achievable plan and if the project runs into difficulty they can adjust.

I recommend managing to the 50% probability… Tough but achievable schedule and effort.

Some projects Estimate at the 20% Probability:  This is a lower cost / schedule plan that can win a contract.  Unfortunately these projects usually overrun.  But they have taken calculated risks.

I once heard of a program that was thrilled that the 1% probability met with their hopes for the program.  So they had a plan with a 99% probability of failure.

 


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Comments

One Response to “Risk / Uncertainty In SEER and Project Management”

  1. Bryn on March 3rd, 2009 10:26 am

    Current AF Cost Analysis Agency recommended practice is to budget to the mean and identify risk dollars and schedule. This represents a shift from the not-to-distant past of trying to budget to 80%CL.

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