11 CPIT 456 by Dr. M. Rizwan Jameel Qureshi Chapter 3 Risk Management

2 What is a Risk?

3 Risk Is Anything that can go wrong against the project to fail it.

4 What is Risk Management?

5 Risk Management Risk management is composed of: – estimating all possible risks that can effect a project; – preparing a plan to manage all estimated risks; – monitoring the estimated risks; – implementing the risk avoidance plan to manage them.

6 What are Main Categories of Project Risks?

7 Main Categories There are two main categories of risks. – Predictable or Certain – Non predictable or Uncertain

8 Predictable or Certain Risks Certain risks are sure risks that they will definitely happen such as budget and schedule risks.

9 Non predictable or Uncertain Risks uncertain risks are those that may or may not happen such as any incident in terms of accident or people may leave the project during development including the project director or management may change their policy in terms of stop financing the project. Stop financing of a project means to finish the project.

10 What are Main Types of Project Risks?

11 Main Types of Project Risks Project Technical Business

12 Project Risks Project risks include budget, schedule, people, resources and customer requirements problems. – Project may not exceed the estimated budget and schedule. – People may not leave the project during completion. Resources may not lack short. – Customer Requirements verification and it may not change after observing the working version.

13 Technical Risks Technical risks include the quality, identifying the potential design, implementation, interfaces, verification & maintenance problems, requirements ambiguity and obsolete technology. – Identifying the potential design means selection of best solution may not be wrong. – SW may not be implement-able after completion. – SW verification problems could be approval of main functionalities and understanding of vague customer requirements. – The technology in terms of HW and SW selected to implement and develop the project may not become obsolete.

14 Business Risks Business risks cover the market trend, scope of SW and management support. – The SW project will meet the customer requirements and market trend at the completion or not. – Will the scope of the SW meet the organizational mission statements or not? – The SW may not lose the support of the top management.

15 Main Strategies to Manage Risks There are two main strategies to handle or manage the risks. – Reactive – Proactive

16 Reactive Strategy Reactive strategy is used when you take some action when some incident or accident happens such as budget, schedule and people risks. Budget and schedule risks are raised when initial actions are not being taken when indications start appearing that project is going out of tolerance level in terms of estimated budget and schedule. – The extra budget and schedule is needed to complete the project. – People risk is raised when some members of the project staff suddenly left the project because they got better offer from any of your competitor and you have no backup to fill their positions. It is also called fire-fighting mode.

17 Proactive Strategy Proactive strategy is the planned strategy to handle the risks. We estimate all possible risks and develop a plan to handle and reduce them and try to reduce the loss if it not possible to avoid the all risks 100%. Proactive strategy is also called intelligent strategy.

18 Assessment Method to Measure Risks Risk Exposure method is used to measure or assess the risks for any software project. The analyst measure the average probability of risk occurrence based on the cost, schedule and support. The constant value for the risks is between 0.7 and 1.0. Risk exposure is calculated by multiplying the probability (P) of risk occurrence and cost impact (C). – Risk Exposure = P * C

19 Example Calculate the risk exposure for a project if 70 % of the SW components will be reused from the 60 selected components. The average code for each new component is 100 LOC at the cost of $ 14/LOC. The risk probability is 80%.

20 solution Risk Exposure = P * C Probability = 80 % SW components reused = 70 % Total components needed to develop = 60 SW components reused = 0.7 * 60 = 42 New SW components needed = 60 – 42 = 18 SW cost needs to develop each new component = $ 14 / LOC Total cost needed to develop 18 components having 100 lines of code = 18 * 14 * 100 = $ Risk Exposure = 0.8 * = $ 20200

Calculate the Risk Exposure Calculate the risk exposure for a project if 70 % of the SW components will be reused from the 60 selected components. The average code for each new component is 100 LOC at the cost of $15/LOC. The risk probability is 50%. 21

Solution Risk Exposure = P * C Probability = 50 % SW components reused = 70 % Total components needed to develop = 60 SW components reused = 0.7 * 60 = 42 New SW components needed = 60 – 42 = 18 SW cost needs to develop each new component = $15 / LOC Total cost needed to develop 18 components having 100 lines of code = 18 * 15 * 100 = $ Risk Exposure = 0.5 * = $