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Primavera Risk Analysis: Liquidated Damage (cost impact) or Recovery Plan (cost/sched impact) ?

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Benjamin Sachs
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Hi, 

after several days self-training on Primavera Risk Analysis, I still can't simulate the following sequence:

-during an iteration, the activity duration is above its deterministic duration, pushing the succeeding milestone in delay.

- in that case, I would like to impact on PRA the schedule and costs in accordance with these 2 scenarios (previously chosen before starting the simulation, I mean only 1 scenario will apply during all iterations):

   > SCENARIO 1 (RECOVERY PLAN, MILESTONE NOT IN DELAY) : more resources put in a certain duration prior to the milestone finish date, and “limit” the activity duration iteration in order to not put the milestone in delay. In this case, no liquidated damage needs to be added. => impact cost, but no real impact schedule.

   > SCENARIO 2 (LIQUIDATED DAMMAGES, MILESTONE IN DELAY): liquidated damage due to milestone delay would impact Project costs. => impact cost, and impact schedule (as the milestone finish is after the baseline in that case)

The goal of this being to properly simulate recovery plan, liquidated damages impact and/or extension of time (with potential associated cost, in case of contractor supporting the cost, like in LTSK project as an example)

Maybe these can be very easily done with basic features (baseline automatical comparison setting off cost impact, what-if scenario possibilities,etc.) but if anyone can help me for this, or any indication regarding PRA possibilities, would be really great!! 

Regards

Replies

Benjamin,

I looked for replies to your question with an interest and expected that somebody will suggest to use conditional networks: if the milestone is achieved after certain date then remaining activities will change (software selects alternative scenario). I don't know if this option is available in PRA but expect that it is natural and shall be available.

Stephen Devaux
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Hi, Benjamin.

I really can't answer your question re Primavera, but, if I may observe, you really have focused on one of the shortcomings of the entire project management methodology: Ben Franklin wrote 265 years ago that time is money, yet for whatever reason, project management refuses to recognize this cost (of which LDs are but one type). If I could wave a magic wand and make one change in PM practice, it would be to force every project to start by quantifying, up front, the cost/value of delay/acceleration earlier or later than a given target date.  And then the software should track that info as part of NPV, as is done with every other investment.

First, as far as Monte Carlo simulations are concerned, you should know that they suffer from the "Garbage In, Gospel Out" flaw:

  • Changing activity distribution shapes can substantially alter forecast duration. For example, if you run the simulation using the triangular distribution default across the three estimates for all tasks, you can pull in the 80% confidence point by 10-15% simply by switching to the Beta (PERT) distribution.  Ain't computers great? Just switch the default and you'll shorten the schedule and avoid LDs!
  • If you are using lags, the MC software will NOT vary the lags.  What this means is that if Task A is an SS5 predecessor of Task B, and Task A's three estimates are 6, 12 and 25, the software will set the lag at 5 whether it's assuming the duration is 6, 12 or 25. Makes a lot of sense, huh?  (This is one of the reasons that Mike Testro's policy of eschewing complex dependencies and lags is often justified.) So, if you're using lags, you might not be running late even if the MC software says you are!

The above are two little flaws of which most risk software users are unaware.

To return to your other point, the issue is the True Cost (TC) of a given activity.  Activities on the critical path have something called "drag" -- it's the amount of time by which the activity is delaying project completion (or a key milestone, if we compute the critical path to an interim milestone). And the corollary to critical path drag is drag cost: how much time that activity is costing (e.g., LDs) by delaying the critical path. 

And although finance and accounting departments have no clue about this, the True Cost of any critical path activity is the sum of its resource costs plus its drag cost, with the latter often being MUCH greater than the former. 

It seems to me that your process should be to:

  1. Determine the drag of all your critical path tasks;
  2. Compute how much each of their drags will cost in LDs (drag cost); and
  3. Decrease the true cost of each of those tasks by either using their drag cost to justify the cost of additional resources, or changing the logic to reduce duration.

If you are interested in more information about critical path drag and drag cost, try this article in the Jan/Feb issue of Defense AT&L Magazine. Unfortunately, Primavera does not compute critical path drag, so you will either  have to compute it by hand (doable with all FS relationships but VERY tricky with complex dependencies!) or get one of the two software packages that compute drag: Spider Project or the add-on to MS Project that can be downloaded (I think still for free) from Sumatra.com here.

Good luck.

Fraternally in project management,

Steve the Bajan

Dennis Hanks
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Ben;

IMO you are better off using your scheduling software package to modify A1 rather than using PRA - add resources to modify the duration.  Then evaluate costs (overtime/additional resources) vs. benefits (not paying LDs).

Now if the question was; "Given a duration with Optimistic, Likely, and Pessimisstic durations and you wanted to know the likelihood of reaching your milestone on time", then you would use PRA.  Do you have such a range?  We can talk about profiles later, if you do.  The costs should fall out depending on how you resource loaded your activity(ies).

Benjamin Sachs
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Sorry, seems I replied to myself... might need additional training on PP forum also ;)

Benjamin Sachs
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hi Dennis

tks for looking at this. I think I found something for scenario 2 (see after a solution proposal, for memory..), but still the first one is a concern for me..

here is a picture of the 2 scenarios I am trying to modelize. Each 2 are independents (2 different Primavera Risk Analysis file). It means I don't want to choose between them during one simulation's iteration.

1188
untitled.jpg

 

My problem is to modelize this, then assign uncertainties to durations only, then launch simulation and observe the following:

- (scenario 1) if one given milestone is delayed, automatic creation of a recovery activity (pushing back the milestone to its baseline initial place, but also creating additional cost due to recovery effort)

- (scenario 2)  if another given milestone is delayed,  automatic  creation of additional cost due to penalties (in proportion of the milestone delay). PROPOSED SOLUTION: instead of having activity linked FF with the finish milestone, I add a "penalty" activity with the following feature: linked FF with the initial activity, and FF on the milestone, and having ability to spread duration plus a mandatory start on the milestone initial date. Then I put some ressources on it (Cost/day).

Then the following occurs: when leading activity's duration iteration is exceeding the deterministic one, the leading activity push the finish date (so increase the duration) of the "penalty" activity, wich increase the cost.

This is how I succeed to simulate dayly penalties when a contractual milestone is pushed on the right..

But regarding recovery plan cost (scenario 1), don't know how to modelize it still...

Dennis Hanks
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AA;

I am not sure I understand the question.  You seem to be asking a deterministic question best modeled by 'what-ifs' in P6 (or whatever scheduling software you are using).  PRA would answer the probability of LDs and a new finish date given a specific risk or task(s) uncertainty.  Maybe an example of the risk event/factor would help to clarify.