Advanced Project Techniques

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Services - Simulation, Risk Analysis and Decision Support

 

Input screen for economic modeThe ability to make well-founded decisions in the nonlinear world of projects has been hugely improved by recent advances in techniques and software. Indeed the power of software far exceeds the ability of most people to use it to its potential. It's quite possible to do full Monte Carlo simulations in a simple spreadsheet without having to buy expensive add-ins (we'd be pleased to show you how).

Economic Models

Project economics are best studied by simulation which enable all aspects of variability, discounting of monetary values and corporate risk policies to be included in a coherent manner. The quality of the information produced is far in excess of simple deterministic models and "what if" analyses. All of our analyses are directed towards predicting the expected financial outcome for a given scenario. An input screen from an oilfield economic model appears at right, or sequence of images depicting this powerful model may be viewed by clicking on this link. The underlying details of the approach adopted are given in an article on this site.

Quantitative Risk Analysis (QRA)

This has become much more widely used of late, and is available to all via packages such as Crystal Ball® and @Risk® which are spreadsheet add-ins, or Vanguard Studio®. Whilst the various systems offer much the same technical capabilities, Studio has some telling advantages (and is our preferred system):

  •  tree-type interface is much more informative and transparent than spreadsheet
  •  can create a 'wizard' style model to guide user
  •  models can be run web-style via browser

The key issue in all models is to understand the limitations of the analysis and the consequences of the underlying assumptions.

Schedule Simulation - "Time is Money"Poorly structured risk model

Most of the commonly used scheduling systems now offer simulation capabilities, but if used inappropriately give misleading results. Provided that several basic principles are followed schedule simulation provides a powerful tool in the effective management of projects.

There are distinct advantages in peforming the schedule and financial modelling within the same model which is the approach we use. If there are separate analyses of cost and schedule risks (as in the graphic on the right, taken from a recent risk analysis report by others), the financial consequences of schedule delay are lost, and the model is effectively useless. We strongly advocate the use of an integrated cost and schedule risk model. Very often a simple model which captures the major risks is adequate, and often provides much more insight than an overly complicated model where one can't "see the wood for the trees".

Value of Information

Frequently companies are faced with the dilemma of having to decide whether to spend extra money on additional information (e.g. another site survey on a civils project, or another appraisal well on an oilfield project) or to proceed based on the existing data. The techniques of QRA provide a sound basis to quantify the value of the additional information, and hence make the decision much easier.

Decision Making

On a day-to-day level there are many project decisions to be made.

Most organisations are now very competent in using spreadsheets for project modelling (virtually every project cost estimate is spreadsheet based), but these are used almost exclusively in deterministic manner.

Decision trees offer a much more effective tool for ranking the possible options, and can introduce a semi-probabilistic approach which anchors the results in reality. They also offer the huge advantage that the underlying logic is displayed in a graphical manner rather than being buried inside a spreadsheet formula (see graphic at right).

Where it isn't possible to quantify the factors affecting a decision (e.g. in terms of money or probabilities), alternative approaches are needed. If the factors can be given a marking or weighting, say on a scale 1-10, then the AHP technique is one of the leading methods to evaluate the alternatives, to give a recommended decision. We have developed a proprietary model for the AHP method within the Vanguard suite which we use in our consulting work.

 

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Contact: phone (44) 01502 575 536• email: enq@apt-projects.co.uk

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