Project Risk Quantification Volume 2

Summary of Project Risk Quantification Volume 2

Project Risk Quantification Volume 2 (PRQv2), expands on the trail blazing coverage of project Quantitative Risk Analysis (QRA) in Volume 1, which covered what QRA is, why it matters and how to use it to assess cost and schedule contingencies realistically.

In Volume 2, John Hollmann shows with thorough data analysis that P+EV contingency assessment applies as realistically to a wide range of construction project types as it does to the process industries from which it was derived and validated.

It covers the Contractor perspective as well as that of the Owner, the special cases of programs and portfolios and forecasting of long-range and multiple option programs.

Using the commercial solution for assessing P+EV online (Validrisk.com) is explained and, most importantly, a snapshot of the incursion of AI into project controls, including QRA, is provided, as of 2024.

Case histories of QRAs are provided for different industries and a method of combining top-down parametric modelling of systemic risk with bottom-up CPM-based QRA using Monte Carlo Simulation is set out in detail.

For those with a stake in project QRA and especially practitioners, this is an invaluable contribution, with information unavailable elsewhere.

Worked Example of P+IRA

John K Hollmann (JKH) has written a sequel to his initial book "Project Risk Quantification" (PRQ), published by Probabilistic Publishing in 2016, now subtitled Volume 1. PRQ Volume 2, was published in January 2025.

In PRQ Volume 1, JKH described the origin of Parametric + Expected Value (P+EV) Risk Analysis, its importance for incorporating past project performance in project contingency and how to determine cost and schedule contingency using P+EV.
JKH also demonstrated that P+EV is applicable to a range of construction-based projects at various stages of development, from concept to execution.

Between the two publications, RIMPL developed a methodology to combine Parametric modelling of Systemic Risk as refined by JKH, with Critical Path Method (CPM) based Integrated (Cost & Schedule) Risk Analysis (P+IRA).
This hybrid methodology, defined in AACE International Recommended Practice 117R-21 ("Integrated Cost and Schedule Risk Analysis and Contingency Determination Using Combined Parametric Modelling and Monte Carlo Simulation of a CPM Model"), is introduced in Chapter 4 of PRQ Volume 2, using a simplified method adapted from P+IRA by JKH which omits assigning risk factors (RFs) assessed by the project team.
The full RP 117R-21 methodology, as developed by RIMPL is set out in PRQ V2 Chapter 11, Appendix 1.

The advantage of assigning project team RFs, particularly duration RFs, is that probabilistic critical paths are likely to be revealed which are quite different from the deterministic critical path and enable the quantitative risk practitioner to help the project team to optimise schedule risk and thus time-dependent cost risk if ICSRA is being assessed.

The full methodology can be reviewed using worked example files which are provided here on this web page.

Three sets of calculation files available here

P+IRA assessment of contingency is a combination of two calculations:

The Parametric modelling of Systemic risk from Parametric + Expected Value (P+EV) hybrid ICSRA and
CPM-based ICSRA contingency assessment (IRA).

A report plus required native format files is provided here to enable the quantitative risk analyst to go through the entire calculations for each of P+EV and IRA.

The P+IRA methodology defined in AACE RP 117R-21 and described in PRQ Vol 2 Chapter 11 Appendix 1 is reported here and the native files required to repeat the calculations are provided.

Any Questions about the Worked Examples?

Contact info@riskinteg.com.

P+EVWorkedExample.zip

P+EV Files

This zip file includes the following:

Pdf copy of report on calculating the P+EV cost & schedule contingencies for the Rail Extension Project worked example.
P+EV Parametric Model for Rail Extension Project provided by JK Hollmann for purchasers of book PRQ Vol. Excel file password protected (pwd "validrisk"). Uses @Risk add-in for EV page to combine Risk Events with Systemic Risk. @Risk not required if just using to quantify Systemic Risk using Parametric page.
Rail Extension Project Risk Events in Excel file. Used to develop risk events (taken from Safran Risk) input to EV page of P+EV tool provided by JK Hollmann.

IRAWorkedExample.zip

IRA Files

This zip file includes the following:

Pdf copy of report on calculating the CPM-based Integrated cost & schedule Risk Analyses (IRA) & contingencies for the Rail Extension Project worked example.
Rail Extension Project Risk Events in Excel file. Used to develop risk events in risk workshop, for subsequent import into Safran Risk.
Safran Risk Schedule File
<RailExtn-PostMitModel200821.SPX> used to start building Safran Risk IRA model for Worked Example.
Safran Risk Risk File
<RailExtn-PostMitModel200821.xml> used to add risk model on top of Safran Risk Schedule Model for Rail Extension Worked Example.
Safran Risk Cost Sheet for building and importing costs into Rail Extension Worked Example.

P+IRAWorkedExample.zip

P+IRA Files

This zip file includes the following:

Pdf copy of report on calculating the CPM-based Parametrically modelled Systemic Risk + Integrated cost & schedule Risk Analyses (P+IRA) & contingencies for the Rail Extension Project worked example.
Safran Risk Schedule File
<P+IRA-RailExtnProj-WorkedEx.SPX> used to start building Safran Risk P+IRA model for Worked Example.
Safran Risk Risk File
<P+IRA-RailExtnProj-WorkedEx.xml> used to add risk model on top of Safran Risk P+IRA Schedule Model for Rail Extension Worked Example.
P+EV Parametric Model for Rail Extension Project provided by JK Hollmann for purchasers of book PRQ Vol. Excel file password protected (pwd "validrisk"). Uses @Risk add-in for EV page to combine Risk Events with Systemic Risk. @Risk not required if just using to quantify Systemic Risk using Parametric page. Used to create Systemic Risk Cost & Duration Probability Distributions for assessing Net Systemic Cost & Duration Risk Factors.
IRA Base Schedule & Cost Model probability distributions used for assessing Net Systemic Cost & Duration Risk Factors.
Safran Risk Net Systemic Risk Schedule File
<RailExtnProjNetSystemicRisk.SPX>.
Used to build SR project to determine NSCRF & NSDRF with corresponding xml file.
Safran Risk Net Systemic Risk Risk File
<RailExtnProjNetSystemicRisk.xml>.
Used to build SR project to determine NSCRF & NSDRF with corresponding spx file.