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Risk Management

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.

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Risk Management

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  1. Risk Management A Key Project Management Knowledge Area

  2. 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

  3. 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.

  4. 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?

  5. Project Risk Management Process • Risk identification • Risk quantification • Risk qualification • Risk response planning • Risk monitoring & control

  6. Project Risk Management Process Risk Identification

  7. 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

  8. Project Risk Management Tools • Risk identification Tools • ETR’s WBS Prompts • ETR’s Gantt Prompts • ETR’s Risk Management Checklist

  9. 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?

  10. Scheduling Prompts S F S S FSDoes anything have to happen before I can start this? Is there any risk in that dependency? SSIf these start at the same time, do I have the resources?Are the resources at risk? S F F F FFWhy do they have to end at the same Time? Does that dependency have any risks? SFWhat needs to be finished before the other can start?Is there any risk that it won’t be finished?

  11. Risk Breakdown Structure (RBS) Software Project Alpha

  12. Risk Management Checklist “PM completes Risk Checklist” Should Be Part of Methodology

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

  14. 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!

  15. 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

  16. Project Risk Management Process Risk Quantification

  17. 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

  18. 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

  19. Quantify in an integrated way!

  20. 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

  21. Project Risk Management Process Risk Qualification

  22. 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 ETR’s Triangle of Truth!

  23. Project Risk Management Process Risk Response

  24. 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

  25. Project Risk Management Process Risk Control

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

  27. Risk & Issues Log (for control)

  28. 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

  29. Project Risk Management Process • Risk identification • Risk quantification • Risk qualification • Risk response • Risk control summary

  30. Visit us at: www.etrtechcenter.com

  31. Q&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 11788 ebfarkas@etrtechcenter.com 631.952.1300 A certified WBE firm established in 1980

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