- Choosing Options
- Time-Risk Curve
- Risk Modeling
- Fibonacci Risk
- Compression and Risk
- Risk Decompression
- Risk Metrics
While compressing the project is likely to increase the risk, the opposite is also true (up to a point): By relaxing the project, you can decrease its risk. I call this technique risk decompression. You deliberately design the project for a later delivery date by introducing float along the critical path. Risk decompression is the best way to reduce the project’s fragility, its sensitivity to the unforeseen.
You should decompress the project when the available solutions are too risky. Other reasons for decompressing the project include concerns about the present prospects based on a poor past track record, facing too many unknowns, or a volatile environment that keeps changing its priorities and resources.
As discussed in Chapter 7, a classic mistake when trying to reduce risk is to pad estimations. This will actually make matters worse and decrease the probability of success. The whole point of decompression is to keep the original estimations unchanged and instead increase the float along all network paths.
At the same time, you should not over-decompress. Using the risk models, you can measure the effect of the decompression and stop when you reach your decompression target (discussed later in this section). Excessive decompression will have diminishing returns when all activities have high float. Any additional decompression beyond this point will not reduce the design risk, but will increase the overall overestimation risk and waste time.
You can decompress any project design solution, although you typically decompress only the normal solution. Decompression pushes the project a bit into the uneconomical zone (see Figure 10-2), increasing the project’s time and cost. When you decompress a project design solution, you still design it with the original staffing. Do not be tempted to consume the additional decompression float and reduce the staff—that defeats the purpose of risk decompression in the first place.
How To Decompress
A straightforward way of decompressing the project is to push the last activity or the last event in the project down the timeline. This adds float to all prior activities in the network. In the case of the network depicted in Figure 10-4, decompressing activity 16 by 10 days results in a criticality risk of 0.47 and an activity risk of 0.52. Decompressing activity 16 by 30 days results in a criticality risk of 0.3 and an activity risk of 0.36.
A more sophisticated technique is to also decompress one or two key activities along the critical path, such as activity 8 in Figure 10-4. In general, the further down the network you decompress, the more you need to decompress because any slip in an upstream activity can consume the float of the downstream activities. The earlier in the network you decompress, the less likely it is that all of the float you have introduced will be consumed.
When decompressing a project, you should strive to decompress until the risk drops to 0.5. Figure 10-7 demonstrates this point on the ideal risk curve using a logistic function with asymptotes at 1 and 0.
FIGURE 10-7 The decompression target on the ideal risk curve
When the project has a very short duration, the value of risk is almost 1.0, and the risk is maximized. At that point the risk curve is almost flat. Initially, adding time to the project does not reduce the risk by much. With more time, at some point the risk curve starts descending, and the more time you give the project, the steeper the curve gets. However, with even more time, the risk curve starts leveling off, offering less reduction in risk for additional time. The point at which the risk curve is the steepest is the point with the best return on the decompression—that is, the most reduction in risk for the least amount of decompression. This point defines the risk decompression target. Since the logistic function in Figure 10-7 is a symmetric curve between 0 and 1, the tipping point is at a risk value of exactly 0.5.
To determine how the decompression target relates to cost, compare the actual risk curve with the direct cost curve (Figure 10-8). The actual risk curve is confined to a narrower range than the ideal risk curve and never approaches either 0 or 1, although it behaves similarly to a logistic function between its maximum and minimum values. As discussed at the beginning of this chapter, the steepest point of the risk curve (where concave becomes convex) is at minimum direct cost, which coincides with the decompression target (Figure 10-8).
FIGURE 10-8 Minimum direct cost coincides with risk at 0.5
Since the risk keeps descending to the right of 0.5, you can think of 0.5 as a minimum decompression target. Again, you should monitor the behavior of the risk curve and not over-decompress.
If the minimum direct cost point of the project is also the best point risk-wise, this makes it the optimal design point for the project, offering the least direct cost at the best risk. This point is neither too risky nor too safe, benefiting as much as possible from adding time to the project.