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Integrated Cost and Schedule Project Risk Analysis

David T. Hulett, Ph.D.1

Hulett & Associates, LLC


Why Integrate Cost and Schedule Risk

Cost estimates often become disconnected from the project reality as schedules slip. Cost estimators sometimes
believe their estimates are still valid even as one of the major components of those estimates, activity duration,
changes. Since each activity’s cost depends on assumptions of duration Cost risk depends on risk in all components
of the cost equation, including duration of the activities.

The thesis of this paper is that the estimate of cost risk can be made more accurate and better understood if the
sources of risk are disaggregated into those that affect time and those that affect the burn rate per unit time.

This approach requires conducting a schedule risk analysis first, and then using those results as input to a cost risk
analysis if the cost estimates are based outside the schedule, say, in a spreadsheet. If resources are loaded and priced
in the schedule, at least two programs that will conduct the integrated cost and schedule risk analysis
simultaneously, driving the cost uncertainty by schedule uncertainty. As a bonus, the risk to the schedule objective
is computed and available for those who are concerned that the project may not achieve its time objective.

Simple Exploration of Project Cost Risk Elements

Cost Risk Model – One Activity Risk

The components of cost for a specific activity include duration, labor hours and labor compensation. Other inputs of
cost such as materials and subcomponents are included, of course, but their risk can be handled in the traditional
fashion so they are excluded from this paper. A specific project activity may have the following parameters:

Cost Estimate Cost Risk Parameters

Estimate Low High
Task Duration 40 30 40 60
Labor Hours 5 3 5 8
Daily Rate 800 750 800 875
Total Cost 160,000
Duration, hours and rate are each subject to variation because of risk. For instance, the number of days may be
under- or over-estimated because the difficulty of the task may have been poorly understood or the productivity of
the workers inaccurately estimated. The number of workers may be different than planned because the tasks were
not well thought out or different skills may be needed. Finally, the availability of specific workers may not have
been assured, giving rise to a skill mix that is different than planned on the activity. The project manager can
examine the risk of each in order to assess cost risk. The three-point estimates show the uncertainty in the estimate
and will be used to construct a triangular distribution of the cost parameters.

Cost Risk Analysis – One Activity Risk

The typical cost risk analysis might incompletely assess the uncertainty of time. Organizations may consider their
cost estimating to be completed even though the schedule is slipping on a weekly basis. Alternatively, a risk analysis
that considers only uncertainty in time may assume that the labor hours and daily rate are fixed as estimated – some

David T. Hulett, Ph.D. is president of Hulett & Associates, LLC, Project Management Consultants of Los Angeles,
CA, USA. He can be reached at (310) 476-7699, David.Hulett@projectrisk.com and www.projectrisk.com.

David T. Hulett, Ph.D., Integrated Cost / Schedule Risk Analysis Page 1 of 11

organizations may be surprised to see 7 people when they budgeted for 5, or that the people actually on the project
are higher-paid workers than they originally bid.

Cost Risk Results – One Activity Risk

The chart below illustrates the cost risk analysis of this activity under three assumptions:
1. Using the traditional cost elements (labor hours and compensation per day) holding time constant.
2. Assuming duration is uncertain but that the labor hours and compensation per day are estimated accurately.
3. Considering the risk in all uncertain elements simultaneously.

Cost Uncertainty Varying only Cost Elements, Only Task

Druation and Both Duration and Cost Elements

40% Cost &
20% Risk

80,000 130,000 180,000 230,000 280,000 330,000

From the chart it is clear that examining only duration or only cost uncertainty will provide an estimate of cost risk
that is too optimistic. The right-hand (red) curve indicates that the combined or total cost uncertainty is greater,
especially at the upper end, than either partial analysis. If an organization wishes to provide a contingency reserve
for, say, the 80th percentile of cost risk, they should include both two types of risk that are represented by the “Cost
& Time Risk” curve. The percentile table for these three curves indicates the magnitude of the effect on one
activity. It highlights the 80th percentile showing that the estimate is $28,000 to $22,000 above those estimates that
take account of only cost or time elements.
Cost Risk (000)
Cost &
Cost Time
Percentile Time
Elements Elements
0% 98 122 82
10% 129 142 133
20% 143 151 148
30% 152 158 159
40% 161 164 171
50% 171 171 183
60% 179 178 194
70% 190 186 206
80% 202 196 224
90% 220 209 248
100% 262 238 350
A useful chart is a scatter plot of cost and time (or date) results of the joint simulation. The chart below uses the
results from 1,000 Monte Carlo simulations of time and cost. A focus is on the point which represents the time
target of 40 days and the cost target of $160,000. The scatter shows that there is a serious likelihood that this
activity will overrun both targets. This is a result that takes advantage of the schedule risk interim result. (40 days is
equivalent to 10/10.)

David T. Hulett, Ph.D., Integrated Cost / Schedule Risk Analysis Page 2 of 11

Date Cost Scatter And Analysis
54% Likely
350,000 Overrun Both





17% Likely
50,000 Underrun
9/26 10/1 10/6 10/11 10/16 10/21 10/26 10/31

Integrated Cost and Schedule Analysis Starting from a Project Schedule

Cost / Schedule Risk Analysis Based on the Simple Schedule

Cost / schedule risk analysis is usually conducted for a project schedule that has many tasks. The schedule shown
below includes two components that begin at the start date and an integration and test phase that begins when the
components are available.

ID Task Name Duration Start Finish 3rd Quarter 4th Quarter 1st Quarter 2nd
0 Integrated Cost-Schedule 163 d 9/1 2/10
1 Start 0d 9/1 9/1
2 Com ponent 1 98 d 9/1 12/7
3 Design 1 28 d 9/1 9/28 Designers[5]
4 Build 1 45 d 9/29 11/12 Build ers[10]
5 Test 1 25 d 11/13 12/7 Testers[8]
6 Com ponent 2 95 d 9/1 12/4
7 Design 2 32 d 9/1 10/2 Designers[7]
8 Build 2 38 d 10/3 11/9 Build ers[8]
9 Test 2 25 d 11/10 12/4 Testers[5]
10 Integration and Test 65 d 12/8 2/10
11 Integrate 40 d 12/8 1/16 Integrators[12
12 System Test 25 d 1/17 2/10 Testers[9]
13 Finish 0d 2/10 2/10

Cost Estimate using the Simple Schedule

Notice that the schedule activities have resources loaded.

Resource Name Type Max. Units Standard Rate
Designers Work 50 $90/hr
Builders Work 50 $80/hr
Testers Work 50 $105/hr

David T. Hulett, Ph.D., Integrated Cost / Schedule Risk Analysis Page 3 of 11

Integrators Work 50 $110/hr
Total cost of this project is estimated to be $1,629,040, before risk analysis, as shown in the table below.

Cost Estimate from the Schedule with Resources

Integrated Cost-Schedule 163 d $1,629,040
Component 1 98 d $556,800
Design 1 28 d $100,800
Build 1 45 d $288,000
Test 1 25 d $168,000
Component 2 95 d $460,840
Design 2 32 d $161,280
Build 2 38 d $194,560
Test 2 25 d $105,000
Integration and Test 65 d $611,400
Integrate 40 d $422,400
System Test 25 d $189,000

Issues in Integrated Cost / Schedule Risk Analysis

Several issues must be addressed in developing an integrated cost / schedule risk analysis on a real schedule, of
which this is a simple representation:
1. The schedule is usually developed to a lower level of detail than the cost estimate. In our schedule, while
the schedule includes tasks of Design 1, Build 1 and Test 1, the cost estimate may be developed and actual
costs collected at the Component 1 summary level. Uncertainty in duration must be analyzed for a concept
that can be matched with the cost uncertainty model concept. In real project schedules, the time and cost
concepts are not often as clearly related as they are in this hypothetical example. Schedules tend to drift
further and further away from the WBS structure as they are developed, while cost elements usually stay
fairly true to the WBS.
2. We need uncertainty in duration of the summary tasks, whereas most schedule risk analysis focuses on
uncertainty in dates. Dates and durations are not equivalent concepts when the summary task does not start
at a fixed point. In this schedule, we cannot tell when the integration and test phase begins because of the
uncertainty in its predecessor activities, Components 1 and 2.
3. Typically schedule risk and cost risk analysis are computed in two different environments. To represent
that problem, the analysis of schedule is built in Microsoft Project® and the simulation is conducted by
Risk+® by C/S Solutions. The analysis of cost is conducted in Microsoft Excel® and Crystal Ball® by
4. If resources are completely specified, priced and loaded into the scheduling package, an integrated cost /
schedule risk analysis may be performed. There are at least two packages that can conduct the integrated
analysis, Pertmaster® Monte Carlo® from Primavera. These results are also shown in this paper.
5. Cost uncertainty requires uncertainty in the average labor resources and average compensation per day,
whereas project managers ramp up and ramp down their resources, at least at the summary level. Often the
project manger or team leader do not think in terms of average labor force or compensation, so some
context must be established to assist their thinking. The information on average labor and compensation
come from the basis of estimate where these assumptions in the baseline estimate are recorded.

Steps in Integrated Cost / Schedule Risk Analysis – Separate Programs

The analysis with schedule and cost in separate programs starts with the schedule shown above and proceeds as
1. Conduct the risk interviews for the schedule uncertainty

David T. Hulett, Ph.D., Integrated Cost / Schedule Risk Analysis Page 4 of 11

2. Simulate the schedule using Risk+, collecting the results of each iteration at the appropriate level. For this
schedule, that level is Component 1, Component 2 and Integration and Test summary tasks.
3. Import the duration results, not the date results, for each iteration of the schedule simulation into a
4. Fit the probability distributions statistically to the duration outputs using Crystal Ball. The fit provides the
closest distribution and can be used to represent time uncertainty in the cost risk simulation.
5. Simulate the cost risk model with inputs representing burn rate uncertainty and the distribution from the
fitting technique that represents time uncertainty.

Schedule Risk Analysis Model based on Simple Schedule

Conducting a schedule risk analysis requires three-point estimates and specification of the probability distribution at
the level of the detailed tasks. The following table shows these values for Component 1 as an example:

Schedule Risk Analysis Input Information -- 3-point Estimates and Curve

Report Min. Rdur ML Rdur Max. Rdur Curve
Component 1 Summary Task 1 0d 0d 0d 0
Design 1 0 20 d 28 d 40 d 2
Build 1 0 35 d 45 d 55 d 2
Test 1 0 15 d 25 d 40 d 2

The schedule risk analysis results, an intermediate result, are shown below for the total project dates. They indicate
that the CPM date, February 10, is very unlikely to occur, given the assessed risks. This is a dramatic but not
unusual result.

Date: 9/1/2003 4:05:56 PM Completion Std Deviation: 12.72 d

Samples: 1000 95% Confidence Interval: 0.79 d
Unique ID: 18 Each bar represents 4 d
Name: Integration and Test

0.14 1.0 Completion Probability Table

0.12 Prob Date Prob Date
Cumulative Probability

0.05 2/17 0.55 3/8
0.10 0.7 0.10 2/21 0.60 3/9

0.6 0.15 2/23 0.65 3/11

0.5 0.20 2/25 0.70 3/13
0.06 0.4 0.25 2/27 0.75 3/16
0.3 0.30 2/29 0.80 3/18
0.35 3/1 0.85 3/21
0.02 0.40 3/3 0.90 3/25
0.1 0.45 3/4 0.95 3/31
2/8 3/7 4/15
0.50 3/6 1.00 4/15
Completion Date
Duration Analysis

Transferring Schedule Risk Duration Results into the Cost Risk Model

The schedule risk simulation saves a file of the results for each iteration (we ran 1,000 iterations) that includes
durations denominated in minutes. The durations are converted into days, dividing by 480 for an 8-hour day
schedule, in a spreadsheet file. For the cost risk analysis we need to estimate a Crystal Ball probability distribution
for the three summary tasks, Component 1, Component 2 and Integration and Test. These distribution types and
parameters for uncertain summary task durations serve as inputs to the cost risk model. Two typical results of these
fitted functions are shown below:

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Interviewing for the Cost Risk Input Data

The cost risk model is similar, at the summary task level, to the single-activity analysis that introduced this paper.
The input assumptions include labor hours and compensation averages over the summary path time frame. If the
interviewees, usually team leaders or project managers, do not think in these concepts, the baseline estimate can be
used to identify baseline assumptions. Interviewees should use those estimates to orient themselves, although they
should be careful not to give those data unrealistic credence. For instance, the table below represents the baseline
data and the interview results for Component 1 cost risk.

Input Data for Burn Rate Risk

Workers Low Most Likely High
Avg. Workers / Day
Component 1 8.1 6 8 12
Daily Rate Low Most Likely High
Avg. Rate / hour
Component 1 88 80 88 91

Structure of the Integrated Cost / Schedule Risk Analysis Model – Input Data Included

Cost Risk Model with Inputs

Baseline Most
Component 1 Low High
Estimate Likely
Avg. Workers per day 8.1 6 8 12
Avg. Rate / Hour 88.1 80 88 91
Duration from Schedule 98.0 Est. Lognormal distribution
Component 1 Cost 557
Component 2
Avg. Workers per day 6.9 5 7 11
Avg. Rate / Hour 88.2 77 88 90
Duration from Schedule 95.0 Est. Lognormal distribution
Component 2 Cost 461
Integration and Test
Avg. Workers per day 10.8 7 11 14
Avg. Rate / Hour 108.4 95 108 120
Duration from Schedule 65.0 Est. Gamma distribution
Integration and Test Cost 611
Total Project Cost 1,629

The simulation results shown below indicate the importance of considering both duration and burn rate uncertainty.
Duration uncertainty is most accurately incorporated in the cost risk analysis as the result of a schedule risk analysis.

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Time, Cost and Time/Cost Project Cost Risk

80% Time
40% Only
Time &
20% Cost

1,200 1,500 1,800 2,100 2,400
Cost (000)

The cost – date scatter diagram can be created in this way only if the schedule can be remade in the Excel program.
This is only possible if the schedule is simple. In this case the schedule is reproduced in the spreadsheet although
that is impractical for real schedules.

Cost / Schedule "Football" All Risks


2,200 Cost /
Cost (000)



1/24 2/13 3/4 3/24

The results of this hypothetical risk analysis show a serious likelihood of overrunning, and a rather remote
likelihood of meeting both cost and time objectives. This result is often found even though the cost estimate looks
to be well constructed and the schedule seems to be viable.
Results of Integrated Cost / Schedule Risk Analysis
Objective(s) Tested Percentage Likelihood
Overrun Cost Objective 81%
Overrun Time Objective 93%
Overrun Cost and Time Objectives 78%
Underrun Cost and Time Objectives 3%

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Integrated Cost / Schedule Analysis when the Resources are Loaded and Priced in the Schedule

Most schedules are not fully resource-loaded with resource costs included. If this information is included in the
schedule, there are two scheduling packages that can compute integrated cost / schedule risk analysis in which both
time and burn rate can be varied simultaneously and the time uncertainty helps drive the cost uncertainty. Those
two packages are Pertmaster and Monte Carlo (from Primavera). They will both be illustrated based on the schedule
presented in this paper.

The project schedule shown above has been loaded with resources (designers, builders, testers, integrators) and their
hourly rate has been entered as well. This is how the cost of $1,620,040 was computed. Pertmaster will read this
MS Project schedule including its uncertain durations and its resources and resource costs. The cost is the same, by
component as seen below in comparison with the table above:

Then, the duration and resource costs per day can be varied so there is a true integration of uncertain duration and
uncertain burn rate. An example is the Design 1 activity.

The simulation chooses values of duration and daily hours for each detailed task for each iteration. It computes the
implied date and total project cost for each iteration. The cost uncertainty that is computed includes both uncertain
durations and uncertain burn rates. Here is the example for total project costs:

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Integrated Cost-Schedule
Entire Plan : Finish Date

100% 31/Mar/04
95% 12/Mar/04
220 90% 08/Mar/04
85% 05/Mar/04
80% 04/Mar/04
75% 02/Mar/04

Cumulative Frequency
70% 29/Feb/04
65% 28/Feb/04
60% 26/Feb/04
132 55% 25/Feb/04

50% 24/Feb/04
45% 22/Feb/04
40% 21/Feb/04
88 35% 20/Feb/04
30% 19/Feb/04
25% 18/Feb/04
20% 16/Feb/04
15% 14/Feb/04
10% 12/Feb/04
5% 08/Feb/04
27/Jan/04 12/Feb/04 28/Feb/04 15/Mar/04 31/Mar/04
Distribution (start of interval)

The joint distribution is charted in a scatter plot, which is easy to do in the program because it is computing both
time and money in a scheduling package. This scatter plot is not

Integrated Cost-Schedule
Scatter Plot



Entire Plan Cost







27/Jan/04 08/Feb/04 21/Feb/04 05/Mar/04 18/Mar/04

Entire Plan Finish

In Monte Carlo from Primavera, the set up uses the same parameters that Pertmaster uses:

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The cost-time envelope gives the same information as Pertmaster. Monte Carlo adds a band around the “football”
(American-style) that attempts to enclose some 90% of the cost-date pairs from the iterations.


Usually the cost estimates are developed on spreadsheet platforms so the result of the schedule risk analysis, the
uncertainty in durations of detailed tasks or of summary project components, have to be incorporated in a simulation
of the spreadsheet. This paper has shown a way to use the schedule risk results from Risk+ to the cost model
simulated by Crystal Ball.

If the resources are defined, priced and assigned to activities in the schedule software, there are at least two
programs, Pertmaster and Monte Carlo, which will provide integrated cost / schedule risk analysis. These programs
simulate cost and date uncertainties with the cost estimates allowing both the duration and burn rates to vary

Cost risk analysis that explicitly incorporates schedule risk analysis results, merging them with burn rate risk
information in the estimates of cost risk that are more accurate than the typical approach. In addition, the schedule

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risk analysis results are provided. Risk responses can be developed that address the time- and cost-type risks
individually as appropriate.

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