5- How to include risk factor into your estimations
Risk is a constant struggle for many project managers. Many know that risks are important but they do not always know where to find them, list them, or account for them. Risk is an important factor when talking about estimations, especially when it is calculated using PERT Method.
PERT Method: a method to analyze the involved tasks in completing a given project, especially the time needed to complete each task, and to identify the minimum time needed to complete the total project.
PERT Formula: [(Best Scenario Est.) + 4* (Most Likely Est.) + (Worst Scenario Est.)] / 6
Now, the question is: “What makes that your worst case estimate?” Answers could be, “This is a new technology that we have never worked with,” or, “The team is geographically dispersed so communication may not be as fast.” This type of information will become the basis of when to add risk and when not to.
To further qualify when to add risk or not, let’s first understand why this is a consideration. Although risk is accounted for in the PERT formula, there are two types. There is the risk that the team member has simply underestimated the length of the task. There is also the risk that an outside influence could cause the delay. Delineating which risk is which is why the question, “What makes it your worst case?” should be asked.
If the team member states that he is just unsure of how long the task will take, then he or she is adding a buffer. These risks are time risks, and the PERT formula should account for this. Some tasks will finish early, and some will finish late. PERT will assist in accounting for both types.
If the team member states that there is an outside influence, then PERT is generally not handling that risk. For example, if the resource said, “I think 15 days is my worst-case scenario because the part we need is unavailable.” This situation constitutes a risk that should be identified and accounted for in addition to PERT. PERT is a fantastic tool to help account for the unknowns in a project and a way to identify critical path tasks. It is also a great way to ask resources to think of everything that can occur and capture risks. In asking your team members to quantify the time estimates, they begin to explain why they have added time to the estimate.
The project manager now can list the risks that are a result of roadblocks, issues, or outside influences. This list also allows the project manager to judge the comfort level of each resource in their estimates. Communication being key, this is a great exercise for a PM to perform with his or her team.
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