3.7

## Darden School of Business, University of Virginia

Skip to 0 minutes and 1 secondSo we know how to develop a risk management plan. We can identify the main risks that our project might face, and prioritize them, assign an owner, and we're ready to get going. What we're going to do now is we're going to dig in to a specific source of uncertainty, and we're going to think about the risk and the variability that we may face in our schedule. We know that there's going to be variability to the duration of our project. How can we be more specific and learn more about it in order to plan properly? In order to do this let's look at the example that we've seen along the way. Let's revisit our start up project example.

Skip to 0 minutes and 41 secondsWe've come up with our work breakdown structure and we've identified the eight tasks that are part of our project. More than that we've come up with some initial estimations. We know which tasks proceed which and we know an initial estimate for the duration. How long will each one of our tasks take? What is our best guess or our estimate for their duration? When we did this we were able to identify using our network diagram and our entire critical path analysis, we identified the overall expected project duration. What is the most likely time that we think our project will be completed by. We thought that it would, it was going to be 12 weeks.

Skip to 1 minute and 22 secondsBut what happens if my creative task, which is critical, takes longer? Say for instance seven weeks? What if it finishes sooner, in three weeks? What is the actual impact to my overall project duration? And more than just the creative task, what about variability in the other tasks that I have in my project? Each one might not be exactly my, my best guess, or my likely scenario. It could be that it could go sooner, or it might take longer. What impact does it have on the overall project duration? Well, we can actually model this.

Skip to 1 minute and 59 secondsWe can actually think about the ranges and try and see what impact each one of the tasks swing, minimum, you know, optimistic scenario versus the pessimistic scenario. What swing or what is the impact on the overall project duration? Let's take it further, in order to start, we're going to come up, we're going to develop a list of minimum durations and maximum durations for each one of our tasks. In our case, we assumed that for instance the creative might range from three all the way to seven weeks. We think that perhaps our strategy is not going to be our two weeks most likely expectation.

Skip to 2 minutes and 37 secondsBut we think that it might vary between one, all the way up to the pessimistic case where it might take six weeks and so on and so forth. We can identify for each one of our tasks what is the possible variability? What is the possible variation in terms of the length of time it will take us to execute? In some cases, for instance, in the case of the HR task, we might also believe that there is no variability whatsoever.

Skip to 3 minutes and 1 secondIf this is a task that we are outsourcing, or if we are contracting a company to deliver a specific piece of work for us, it might be that there is no variability in that task, and we know for certain that it's going to take one week to deliver.

Skip to 3 minutes and 15 secondsOnce we've come up with these estimates we can then explore, for each one of these tasks while holding the other at their most likely case. What is the swing on our project duration? And the best way to view it, and the best way to gain insight as to that impact, Is to look at what is called a tornado diagram, or a tornado chart. The tornado diagram is a visual representation of the variability in the overall project duration when I change each one of my tasks from its minimum to its maximum duration. Let me walk you through and explain it with the example the finance task which appears on the top.

Skip to 3 minutes and 50 secondsThe finance task shows the swing with the blue side going down from my line in the middle which is on 12, it goes all the way down to 11. This is a project duration of 11 and it goes all the way up, in red, the most pessimistic or the, the worst case scenario, all the way up to 17. This implies that when my finance task swings from its earliest completion time. To its maximum completion time the impact on my project duration is, that it can vary from 11 weeks to 17 weeks. There is a variability of six weeks that is caused by the variability in the finance task itself.

Skip to 4 minutes and 31 secondsThe chart is called the tornado, because typically it is ordered from largest all the way down to the smallest and that gives us an indication as to the biggest ring versus the smallest ring. As we can see, the HR and the IT tasks do not have an impact on the overall product duration. And so if we're trying to focus our attention on which tasks give us the most source of uncertainty, in terms of our overall project duration, we can focus our attention at the top of the chart, or those tasks that are closer to the top, as supposed to those closer to the bottom.

Skip to 5 minutes and 4 secondsSo, it identifies and prioritizes some of these tasks for us in the context of managing our project duration and getting a better sense and feeling more comfortable with any deadline that we set to our project. So the first step associated with conducting a risk analysis, an in-depth risk analysis for our project schedule is to first ask and collect three estimates for each duration of each task. Ask for the minimum duration, ask for the maximum duration and try and identify the most likely. Sometimes it's useful to look at historical data to come up with that information. How quickly were tasks completed in the past when we've done something similar?

Skip to 5 minutes and 45 secondsOr what was the maximum it ever took us to get some sense of the maximum possible duration? You could ask multiple individuals who have experience in that area, how long did it take you in the past? What was the quickest you were able to achieve a certain task? Or how, what was the worst that ever happened to you? Or, we could ask individuals from different departments, with different expertise, to give us different perspectives and put that information together and combine it to come up with three points or three numbers to estimate a range. And over all we want to start thinking about our project completion as a range and not as a specific point.

Skip to 6 minutes and 22 secondsWe know that our project is not likely to complete exactly in the 12 weeks that I, we identified up front. We know there's going to be a swing, it's going to be anywhere from maybe 11 to 17 weeks. And so we start using those terms in order to describe our project and not guarantee a completion by, for instance, 12 weeks. Our next step will be to add probabilities and to, to talk about how likely it is that we complete within a certain length of time. But that's the next step.

# A More Realistic Timeline Part I

In this video, Professor Yael Grushka-Cockayne explains schedule risks analysis using the start-up example. As you watch this video, think about some of the risks and variability that you may face in your project schedule.

She then discusses how the best way to gain insight to impact is to look at a tornado diagram/chart, which is a visual representation of the variability in the overall project duration when you change each one of your tasks from its minimum to its maximum duration. If you would like to follow along with with the video as Professor Yael Grushka-Cockayne discusses tornado charts using the startup project, please see the excel workbook attachment under “Downloads” called StartupExampleTornadoChart.

Once you’ve finished watching this video, proceed to the Tutorial for Using Tornado Chart video where Professor Yael Grushka-Cockayne walks you through an example.