PMI Needs to Consider the Time Value of Risk

Issue:

PMI understand that unidentified risks may cause project failure unless the cost of it is determined and dealt with in a Risk Reserve.

So – why do they not consider that risks have a potential to DELAY projects?  Any time a risk with a potential schedule impact occurs – it can certainly delay a path – and perhaps the critical path thereby delaying the project.

Failure to consider the time value of risk may doom every project to schedule failure.

Wrong Way:

Some manage by the Critical Chain Method (the process of adding a “pad” between every milestone to make up for actually breaking the work down and managing properly).  If those pads are meant to handle risk – then project managers need to calculate it correctly instead of padding (defined by PMI as unethical for a reason).

Right Way:

PMI proclaims:                  1. Cost Impact of Risk * Probability of Risk Occurring = EMV (Expected Monetary    Value) of Risk

2. Total EMV or Risks = Risk Reserve to be added to the Budget

 

PMI needs to include:    1. Time Impact of Risk * Probability of Risk Occurring = ETV (Expected Time Value) of Risk

2. Total ETV of Risk = Risk Schedule Reserve to be added to the Schedule

3. Risk Schedule Reserve should be added to the Network Diagram from all paths just before the END.

 

Conclusion:

Exceptional project managers should account for the ETV (Expected Time Value) of risk correctly to ensure successful project schedules.