How does each of the following methods facilitate the assessment of risk performance outcome:
– Variance analysis
– Trend analysis
– Earned value management
The variance analysis is said to be the central concept within the boundaries of project management. How a big group of some variables are broken to make the constituents parts, and the refined analysis of these parts is known as variance analysis. The main motive is to determine the difference between an expected and actual result, also known as a variance. The factors which affect the elements can be easily identified by such type of narrowed-down analysis. Every aspect leading to Variance is addressed through it. The causes which led to the difference between the actual result and the expected result are also discovered here.
The main focus of the project management team will be towards the variable of scope, cost, and schedule during the variance analysis. The different factors affect each of them, and it helps to figure out the nature of the Variance. Also, it helps to find out why each constituent elements differs from the expectations.
Performance qualitative risk analysis: it is a process which involves setting up of the risks as the main priority to assess the study and take further actions.
Variance in the world of the project management is said to be the measurable change from a known baseline or standard.
Cost Variance (CV): the full form of CV is Cost Variance. It is known as the actual measurement of the cost performance.
Scheduled Variance- it is the quantitative measure used by the project management personnel whose work is to determine the performance which is expected during and after the completion.
VAC- the full form of VAC is Variance after Completion. It helps to project the budget deficit or budget surplus.
It helps to improve risk management in several ways. Firstly, it helps to identify the root cause of the problems and issues. Trend analysis helps to discover the risks and prevent them quickly. It might go unrealized that a considerable amount of claims may be coming from the same department, branch or employee. For example- One thing you should know is that you spent $500.000 on slip and the claim fell last year, but on the other hand 75% come from the same location. With the help of this knowledge, you can find out the place, dig into it and figure out the reason for the falls and fix the problem at its sources.
The claims made repetitively about the same types of incidents as they were not aware of the problems. A mitigation strategy could be applied in case you are unaware of the issues and its cause.
The lower insurance premiums can be negotiated by it and may even help you to reduce the cost of your annual claim. It will also put a risk on the employees who spend their time on valuable tasks such as acting on-trend information and the improving operations in the long run.
The decision making and risk strategy are often guided by trend analysis. In the era of quickly varying factors, it is often difficult to understand what to do next. The key areas which require improvement are highlighted by trend analysis which helps you to know what improvement first action should be taken. The effectiveness of mitigation activity is usually monitored by trend analysis. The precautions and better preparation helps to handle a similar situation in the long term.
Previously, the risk management department used to be an isolated department within a company. Nowadays, it is essential to integrate it within the day to day activity of other departments. The trend analysis can be used as an opportunity to create awareness and educate employees.
Earned value management
It is essential to understand the relationship between a project risk analysis (PRA) and earned value management (EVM). People usually face confusion that if they are doing EVM, then is there a need for risk analysis or it is redundant. Risk analysis and earned value are said to be complementary practices as an integrated part of the project management process. It is often asked how these two are related to each other and to understand this, and we need to define earned value and project risk analysis.
The process of identification of project risk event and uncertainties an examining their impacts on critical projects is known as Project risk analysis. The key projects include cost, schedule, and performance using Monte Carlo simulations. It helps to determine how well the project is executed compared tactual work performed over predetermined intervals. The account measures of planned work like Budgeted Cost of Work (BCWS) vs Budgeted Cost of Work Performed (BCWP) that helps to differentiate between the actual performed and planned work. Considering this particular system, there are many such metrics which looks complex but are very simple. An important question arises that the project will help to produce the value for the provided funds. The payment is not based upon the efforts which are put but on the amount which is created. The plan is realistic if you get the assurance that you’ll be paid based upon delivery. Hence, here the goals of the EVM process get the support of project risk analysis.
Among the key objectives of risk analysis, one is the creation of the “risk-adjusted” realistic project plans. This is exhibited through the assessment of the possible impacts and uncertainties about the project, reducing the risks factors through the mitigation, response planning and appropriate margin addition and cost contingency to account the unmanageable risk. The project helps to gather courage and provides confidence to execute the plan accordingly. The project risk analysis is done initially as a part of the development of the project plan. But the project risk management can also argue the EVM process when the project is executed as the part of delivery dates forecast.
The actual performance cannot be traced using EVM. But it can use an indicator which uses the current production, which helps to estimate time to fulfill cost at completion. The value which allows forecasting the budget that will be required to complete the project can be calculated using indicators like ETC (Estimate to Complete) or EAC (Estimate at Completion). The issue with these indicators is that they are single point estimates which are mostly inaccurate when calculating under uncertain condition. If this scenario arises then the analysis of project plans can be done through the prediction of outcomes that the project has to encounter yet. It stands extremely useful as it provides a forecast which is a risk-adjusted given current project status.