Risk Management

A Key Project Management Knowledge Area

Project Management Practice

• Why do most application development projects fail?

• How can you improve productivity by 20 to 30%?

• Why are 66% of IT projects late or over budget?

Gartner Report – April 18, 2000

• Fixing a requirement problem early on will cost $1.• That same problem will cost $10. later in design

• In deployment the cost increases to $100.

University of Southern California – PM Network May 2003

Software industry projects fail because….

Software development projects are in jeopardy Software development projects are in jeopardy because they are not managed by experienced because they are not managed by experienced project managers using proven methodologies and project managers using proven methodologies and techniques.techniques.

Managing Software DevelopmentManaging Software Development

• • What is Risk Management?• Tools and Techniques to Manage Risk.• How Does Risk Management Fit Into My Project Plan?

RisksRisks

… software to autopilot ground vehicles …

Project Risk Management Process

• Risk identification• Risk quantification• Risk qualification• Risk response planning• Risk monitoring & control

Project Risk Management Process

Risk Identification

Risk Identification Sources• Documentation/Contracts• History

– Accurate stakeholder(s) identification– Mismanaged requirements gathering– Lack of documentation– Unchallenged assumptions

• Integration• Seamless• Compatible• Import/Export Functionality

• Work Breakdown Structure• Scheduled Triggers• Risk Breakdown Structure• Design• Testing/Technology• Operation/Maintenance/Support• Copy write/Patent/License

Project Risk Management Tools

• Risk identification Tools– ETR’s WBS Prompts– ETR’s Gantt Prompts– ETR’s Risk Management Checklist

What do I need for this activity/deliverable? Dependency RisksIs what I need available (When I need it)?

Human resources?Documentation?Hardware?Approvals?Funding?

Does this activity/deliverable assume anything? Assumption RisksIs the assumption(s) valid?

Does this activity/deliverable have constraints? Constraint RisksCan it be done with the constraints?

Work Breakdown Structure (WBS) Prompts

FF

SS

SS

SS

FF

FF

SS

FF

Scheduling Prompts

FS Does anything have to happen before I can start this?

Is there any risk in that dependency?

SS If these start at the same time, do I have the resources?Are the resources at risk?

FF Why do they have to end at the same Time? Does that dependency have any risks?

SF What needs to be finished before the other can start?Is there any risk that it won’t

be finished?

Risk Breakdown Structure (RBS)

Risk-

RiskBreakdownStructure

(RBS)

Requirements

Elicitation

Documentation

Validation

Schedule

Resources

Durations

StakeholderAnalysis

CorrectManagementLevel

CorrectUserLevels

Software Project Alpha

Risk Management Checklist

“PM completes Risk Checklist” Should Be Part of Methodology

Risk Management of Triggers(Time based trigger example below.)

Risk Identification

The process of systematically identifying all possible risk events which may impact a project

– Generate a Risk List that will later be quantified and qualified. – Cumulative effect of several risk events occurring in concert with each other may be of greater significance

than the impact of a single issue

Classify by cause, not effect or impact!Classify by cause, not effect or impact!

Scheduling Risks

• Level of Effort (LOE) subjectively estimated • LOE estimated by incorrect stakeholder

• Work Package in Work Breakdown Structure (WBS) too large for accurate estimates• LOE based on a resource with overestimated skills &/or experience

Project Risk Management Process

Risk Quantification

Risk Quantification

• Probabilities & Statistical Equations• Decision Tree Calculations• Subjective Scales• Formulas Project Managers use … • Can be expressed numerically

– mean– median– mode– range– variance – standard deviation

Quantification of Dollar Value

• Product of two variables– Risk Event Probability:

• An estimate of the probability that a given risk event will occur

– Risk Event Value: • An estimate of the gain or loss that will be

incurred if the risk event does occur

{Probability of Impact x Dollar Value = Event Monetary Value: (P)I=EVM}

Reference: PMBOK, 1996. Ch. 11

COST

SCHEDULE

SCOPE

Quantify in an integrated way!

Quantification of Duration Ranges

• (O + 4M + P) / 6 is PERT (Program Evaluation & Review Technique)

• (P – 0) / 6 is Standard Deviation

• [(P – O) / 6] is Task Variance

• is Project Variance (sum of the task variances)

Handy formulas to help quantify risk activity/task duration:O = Optimistic, M = Most Likely, P = Pessimistic

Please remember that subjective P, M, and O inputs yield subjective outputs.Historical inputs are preferred for P, M, and O values

2

[(P – O) / 6] 2

Project Risk Management Process

Risk Qualification

Qualitative Risk Rating

• High Likely to cause significant impact to schedule/cost/scope/quality

• Moderate Has potential to cause impact to schedule/cost/scope/quality

• Low Has little potential impact to Schedule/cost/scope/quality

COST

SCHEDULE

SCOPE

Remember ETR’s Triangle of Truth!

Project Risk Management Process

Risk Response

Risk Response Options

Ways to address risk issues.

– Avoidance: Eliminate up front (e.g. activity sequence in test plan)

– Reduction: (mitigation) Minimize anticipated impact

– Transfer: (deflection) Redirect issue ownership (sub/direct property/indirect consequential)

– Retention: (acceptance) Accept real or potential impacts

Project Risk Management Process

Risk Control

Risk Management Plan

• Should document the procedures that will be used to manage risk throughout the project

Reference: PMBOK, 1996. Ch.11

[If applicable] [Y-yes, N-no] [Open/Closed] Priority Scale [0= Will impact Critical Path, 1=1 day, 2= 1week, 3= > 1 week]

No. Unit Risk Item/Issue Status

Open Date Due Date

Revised Due Date

Finish Date Priority Initiator Owner

Notes

1 International N Contact list Open 6/20/2000 ####### 8/24/2001 1 J oe Customer J anet Smith Send Bill the List

2 EV4 Y Add unit Open 7/30/2001 ####### ####### 0 Customer PM

Esure that new unit requirements are incorporated into overall plan

3 N

4

Risk & Issues Log (for control)

Risk Management Process & the Project Plan

•

• Document risks in project plan• Use communication sub-plan to manage expectations • May require WBS or RBS elaboration • Budget for risk events • May imply adding mitigation tasks in schedule • Document status of risk issue • Assume risk reviews are part of entire project life cycle

Project Risk Management Process

• Risk identification• Risk quantification• Risk qualification• Risk response• Risk control

summary

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Q&AQ&A

For additional information & copies of this presentation: Email Edward B. Farkas, PMP Managing Director, Project Management

Practice:

ETR Technology Center, Inc.180 Oser Avenue

Hauppauge, NY 11788ebfarkas@etrtechcenter.com

631.952.1300A certified WBE firm established in 1980