Estimating High Risk Projects

The major difference between high-risk and low-risk projects depends on the validity of the historical estimate. Construction companies have well-defined historical standards, which therefore makes their risk lower, whereas many R&D and MIS projects are high risk. Typical accuracies for each level of the WBS are shown in Table 14-12.

One of the most common techniques used to estimate high-risk projects is the "rolling wave" or "moving window" approach. This is shown in Figure 14-13 for a high-risk R&D project. The project lasts for twelve months. The R&D effort to be accomplished for the first six months is well defined and can be estimated to level 5 of the WBS. However, the effort for the last six months is based on the results of the first six months and can be estimated at level 2 only, thus incurring a high risk. Now consider part B of Figure 14-13, which shows a six-month moving window. At the end of the first month, in order to maintain a six-month moving window (at level 5 of the WBS), the estimate for month seven must be improved from a level-2 to a level-5 estimate. Likewise, in parts C and D of Figure 14-13, we see the effects of completing the second and third months.

There are two key points to be considered in utilizing this technique. First, the length of the moving window can vary from project to project, and usually increases in length as you approach downstream life-cycle phases. Second, this technique works best when upper-level management understands how the tech-

TABLE 14-12. LOW- VERSUS HIGH-RISK ACCURACIES WBS Accuracy

Low-Risk

High-Risk

Level

Description

Projects

Projects

1

Program

±35

±75-100

2

Project

20

50-60

3

Task

10

20-30

4

Subtask

5

10-15

5

Work package

2

5-10

Figure 14-13. The moving window/rolling wave concept.

nique works. All too often senior management hears only one budget and schedule number during project approval and might not realize that at least half of the project might be time/cost accurate to only 50-60 percent. Simply stated, when using this technique, the word "rough" is not synonymous with the word "detailed."

Methodologies can be developed for assessing risk. Figures 14-14, 14-15, and Table 14-13 show such methodologies.

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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