Risk Management

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Risk Management
A Key Project Management Knowledge Area
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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

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Software industry projects fail because.
Software development projects are in jeopardy
because they are not managed by experienced
project managers using proven methodologies and
techniques.
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Risks
Managing Software Development
software to autopilot ground vehicles

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

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Project Risk Management Process

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

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Project Risk Management Process

• Risk Identification

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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

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Project Risk Management Tools

• Risk identification Tools
• ETRs WBS Prompts
• ETRs Gantt Prompts
• ETRs Risk Management Checklist

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Work Breakdown Structure (WBS) Prompts
What do I need for this activity/deliverable?
Dependency Risks Is what I need available (When
I need it)? Human resources? Documentation?
Hardware? Approvals? Funding? Does this
activity/deliverable assume anything? Assumption
Risks Is the assumption(s) valid? Does this
activity/deliverable have constraints? Constraint
Risks Can it be done with the constraints?
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Scheduling Prompts
S
F
S
S
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?
S
F
F
F
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 wont be
finished?
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Risk Breakdown Structure (RBS)
Software Project Alpha
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Risk Management Checklist
PM completes Risk Checklist Should Be Part of
Methodology
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Risk Management of Triggers (Time based trigger
example below.)
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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!
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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

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Project Risk Management Process

• Risk Quantification

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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

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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)IEVM
• Reference PMBOK, 1996. Ch. 11

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Quantify in an integrated way!
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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)

2
2
? (P O) / 6
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
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Project Risk Management Process

• Risk Qualification

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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

Remember ETRs Triangle of Truth!
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Project Risk Management Process

• Risk Response

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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

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Project Risk Management Process

• Risk Control

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Risk Management Plan

• Should document the procedures that will be used
  to manage risk throughout the project
  Reference PMBOK, 1996. Ch.11

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Risk Issues Log (for control)
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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

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Project Risk Management Process

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

summary
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Visit us at www.etrtechcenter.com
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QA
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 11788 ebfarkas_at_etrtechcenter
.com 631.952.1300 A certified WBE firm
established in 1980