How to Assess Schedule Risk in Projects, Turnarounds, or Business Operations
Schedule risk is a critical factor that can significantly impact the success of any project, turnaround, or business endeavor. Missed deadlines and schedule overruns can have severe consequences on several measures of success, including customer satisfaction, lost production, schedule overruns, and earned value. Therefore, it’s essential to understand what constitutes a schedule risk and to assess it accurately to minimize its impact. In this article, we discuss how to assess schedule risk in projects, turnarounds, or business operations.
Assessing Schedule Risk
The first step in assessing schedule risk is to identify the critical path of the project or business activity. The critical path is the sequence of tasks that, if delayed, will cause the entire project or activity to be delayed. Once the critical path is identified, any delay on that path can be assessed in terms of its cost and impact on other risk categories.
Cost Associated with Delay
There is a measurable value associated with any delay on the critical path of a project or business activity. The costs include both direct and indirect costs related to delaying the start-up or grand opening. Direct costs may include crew overtime, demurrage, penalties, late fees, and equipment rentals. Indirect costs may include idle workers and lost future sales. Using standard economics, all these costs can be calculated and included in the risk category of cost.
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Overlap between Cost and Schedule Risk
Having a separate schedule risk category may not be necessary as it can cause confusion between cost and schedule risk, leading to clutter. Any legitimate schedule risk can be quantified as a cost or falls within one of the other risk categories. An example is when you are building a large and small building and the start date for the small building is delayed. Provided the delay it makes no difference as long as the small building is done by the time the large one is completed; it has no consequence. If the delay has consequence, it is measured in terms of dollars. Removing the schedule risk category avoids debates.
Schedule Float and Inconvenience
Schedule float refers to a situation where a delay on the critical path does not impact cost, safety, or any other risk category. A piece of industrial equipment is to be delivered in February but not due to be installed until September. If delivery is delays three months, it is not considered a risk but rather an inconvenience. Therefore, any schedule risk that lacks a cost or other risk component is either schedule float, or simply inconvenience, and it should be ignored.
Although having a separate schedule risk category may seem logical, it can cause confusion and clutter. Assessing schedule delays accurately is crucial for the success of any project, turnaround, or business operation but schedule risk itself is not typically a legitimate category. A legitimate schedule risk can be quantified as a cost or falls within one of the other risk categories. Identifying the critical path and determining the costs and other category risks associated with delay provides a more accurate picture from a risk perspective.
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