The Critical Path Method to Risk Management

The quantitative risk analysis allows a broad understanding of the potential risks, their possibilities of occurrence and their respective impacts on the project objectives (Papke-Shield et al., 2010).

In 2013, I have participated in a mega project that involves high investments and long-term results, a high degree of uncertainty and risks. The used techniques in quantitative risk analysis:

• The critical Path Method (CPM) is mentioned as the simplest available technique for modeling the execution of a project with application in various areas of the industry, including construction projects.
• Schedule risk analysis (SRA) is a simulation technique to reveal critical components of a project that is most likely to impact project objectives (VANHOUCKE, 2012). This technique adopts a statistical approach that considers the effects of uncertainty on estimated durations.

The risk register of that project involves several aspects that are related to the number of employees, equipment & spare parts availability, number of suppliers, and contractor readiness.  However, all of the mentioned aspects are eventually going to impact the project schedule. Delays are common and cause considerable losses for the parties involved, which recommend quantifying the probabilities of delays in project management schedules (LUU et al., 2009; HULETT, 2011).

According to Merrow (2011), data from more than 300 megaprojects executed worldwide in 2010 in different application areas have indicated that 65% of projects with a budget of more than US $ 1 billion have failed to achieve their objectives. This study evidenced these objectives are impacted especially by execution schedules different from the planned ones. 

The risk management in projects presents the following processes (NIETO-MOROTE and RUZ-VILA, 2011): 

• Risk identification.
• Risk assessment.
• Responses to risks.
• Monitoring and control of risks.

Project planning considers project uncertainty as a threat to the success of its implementation and focused on finding ways to reduce this uncertainty. In fact, this uncertainty translates into project risks that, when not effectively managed, can have negative impacts on all parties involved - project team, clients, companies, communities, the environment, and governing bodies (MERROW, 2011). The implemented strategy to reduce the project risks was focused on the following: split the equipment and spare parts in two categories, long and short lead items to be delivered. Prepare a list of alternative suppliers in case of any additional products or services are needed. Finally, continuous audit and assessment of contractors’ readiness. 

Reference 

• DE ARAÚJO SOUSA, J. P., DE ARAUJO, F. O., DE PAULA, I. C., & BARCAUI, A. B. (2018). Quantitative Risk Analysis in Megaprojects Schedules: A Critical Comparison between the Theoretical Findings and the Empirical Evidence from a Brazilian Oil and Cas Company. Journal of Modern Project Management, 72–89. 
• Hugo, F. D., Pretorius, L., & Benade, S. J. (2018). Some Aspects of the Use and Usefulness of Quantitative Risk Analysis Tools in Project Management. South African Journal of Industrial Engineering, 29(4), 116–128.