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178 RISK MANAGEMENT AND CONTINGENCY

• The Titanic—There was such a low chance of risk, from sinking, that the
possibility was entirely discounted and ignored—with a devastating out-
come. Lesson: Even a very low risk can produce gross consequences.

• Denver International Airport—Did anyone think about the effect on
time and cost from the failure of the automated baggage handling system?
Is it possible that the team just assumed that this entirely new technology
would be absent of risk just because the small-scale mockup worked? Les-
son: Don’t put all of your eggs in one basket. There should have been a
backup strategy.

• The Standish Chaos Report—This 1998 study of information technology
projects indicated that these projects averaged a 50 percent schedule delay and
a 186 percent cost overrun. Imagine the effect of this on cash flow and prof-
itability. And what about the effect on the time to recoup the investment (see
Chapter 9.3)? Can there be project success with this kind of performance?
Lesson: A successful project requires realistic estimates, time and cost contin-
gency, effective management, and comprehensive risk analysis and mitigation.

• Where’s Murphy?—Why do so many people feel that they are exempt
from Murphy’s Law? Murphy visits every project. Lesson: It is folly to think
that “what can go wrong will go wrong” does not apply to your project.

• Elastic task durations—We first raised this risk issue in Chapter 3.3.
Sometimes, we are overly optimistic and fail to allow enough time margin
for things to not go perfectly on each task. At the other extreme, we add
time contingency for every imaginable delay, and then add a cushion to
boot. The first action produces an impossible-to-meet schedule. The second
action produces an overly long schedule and causes the schedule itself to
produce project delays. Lesson: Schedules should be realistic. In many in-
stances, using three time estimates, as in the PERT method, will produce
more reasonable schedules plus an analysis of schedule risk.

Recognizing that risk, on projects, can take many shapes, here are just a few of
the recognized approaches to dealing with project risk.

PERT Estimating Models

There is an ability to model risk with PERT estimates. This is the method where
we use three time estimates for each task and employ Monte Carlo simulation to
generate a statistical analysis of the probability to meet any project completion
date. Despite my personal aversion to anything that has a sigma in it, there is sig-
nificant value in using the PERT estimating protocol. But, there is also a serious
limitation to this method. It only addresses uncertainty in time.