Many projects overrun their budget and schedule targets, often due to the following causes:

• Project plans are biased, usually towards being over-optimistic.
• Project plans do not fully reflect the impact of uncertainty and risks (including both project-specific risks and systemic risks).

Fortunately, quantitative risk analysis can help to address both of these, through a two-stage analysis. The first stage addresses the two main causes of unrealistic plans:

Optimistic or biased plans.

All project plans include estimates of cost and duration which are based on assumptions, and these are often optimistic. For instance, we might assume that problems that affected previous similar projects will not happen on this project.

Or, we might produce unrealistic estimates because of pressure from the customer, management, the competition and the economics of the project, which usually results in optimistic plans that may be unachievable.

Ideally, if we could challenge assumptions and remove the effect of optimism or bias, we could ensure that the project starts with a realistic baseline plan. However, it may not be possible to counter estimating bias fully, so the uncertainty component of the risk analysis will usually include a correction for optimistic estimates of cost or duration.

Read more