In Chatter: Basic Manual Project Management – Part 1: Cost Evaluation we looked at some of the basic cost evaluation techniques when dealing with a number of projects and having to decide which will be the right one … not from a “technical having fun” perspective, but from a cost effectiveness.
In this post we will briefly look at risk planning, in particular the PERT techniques.
Before we start, we should cover the four basic ways we can deal with project risks, namely acceptance, avoidance, reduction and transfer.
- “acceptance” … we literally accept the risk, which is a feasible option when the cost of taking any action is likely going to be more than any probable damage … although I personally do not like this option and had a hard time in one of my assignments trying to justify it.
- “avoidance” … we avoid everything that is a risk, which is probably why I will never jump out of a fully functional aircraft and hope that the parachute opens.
- “reduction” … we take proactive and preventative measures to actively reduce the probability of risk, such as packing a safety parachute if you are insane enough to jump out of a fully functional aircraft.
- “transfer” … we transfer the risk to another person or organisation, which typically involves outsourcing and/or calling the cavalry.
PERT stands for program evaluation and review technique and based on literature I read, it was developed for the fleet ballistic missile program. It requires us to define three estimates for every activity including most likely, optimistic and pessimistic.
PERT expected duration formula = (optimistic + (4 x most likely) + pessimistic)/6
Before we look at an example, we need to cover the formula for calculating the standard deviation of an activity time, which is (pessimistic – optimistic)/6
The table shows 6 tasks, with the optimistic likely and pessimistic estimates. The figures in bold indicate the calculated expected duration and standard deviation. The figures in red are the estimates done using the formula I have been given by my mentor in the early 80’s and have used ever since … pretty close and therefore the PERT technique gives me a good warm fuzzy feeling.
PERT uses the following activity template to visualize the above as events:
If we draw the five activities using this template, we get:
When we calculate the standard deviation for event “4”, we have to first calculate the square root of the sum of squares of the individual standard deviations using tasks A and C, as well as B and D as shown. The resultant standard deviation of A & C, shown as standard deviation 4 using 1 & 2, is the greater of the two and therefore the one we use for event 4.
If there is any interest, we can chat about the significance of the standard deviation in the next blog post, to calculate the probability of completing the project on time … assuming we have to complete within 17 days.