PRJ566 Managing Risk

What is risk? Risk=an uncertainty that can have a negative impact on meeting project objectives Risks need to be managed throughout the project Anticipate/avoid problems Minimize surprises

Project Management Life Cycles Linear Iterative Source: Figure 2.5 Effective Project Management: 6th edition, Robert Wysocki, John Wiley & sons, 2009, Chapter 2

When Risk is not Managed Many people around the world suffered from financial losses as various financial markets dropped in the fall of 2008, even after the $700 billion bailout bill was passed by the U.S. Congress According to a global survey of 316 financial services executives, more than 70 percent of respondents believed that the losses stemming from the credit crisis were largely due to failures to address risk management issues They identified several challenges in implementing risk management, including data and company culture issues

Identifying Risks in IT Projects: “red flags” Lack of user involvement Lack of management support Poor definition of Scope Lack of proper planning Unrealistic expectations

Identifying Risks in IT Projects: “red flags” New technology Lack of required skills Poor communication Poor estimating Poor project management …

Managing Risks Perform a risk analysis Monitor and control risks Identify Risks Prioritize risks based on probability and impact Plan risk response Monitor and control risks

Identify Risks What potential events might hurt the project? Categories of Risk: Market risk Financial risk Technology risk People risk Structure/process risk

Organizations and risk Risk Seeking Risk Neutral Risk Averse

Prioritizing Risks For each risk need to consider: What is the probability that the risk will occur? What impact will the risk have if it does occur? There are many formal/informal methods for quantifying these measures. For example, one of the simplest: Probability is assigned value from 1 (very high) to 4 (unlikely) Impact is assigned value from 1 (high impact—financial or other wise) to 4 (little or no impact) Overall risk = (probability + impact)/2 Each organization will have its own formula for measuring risk ; some are very complex

Risk Response Planning After identifying and quantifying risks, you must plan your response—how will you manage them to keep them from sinking your project Four main response strategies for risks Risk avoidance Risk acceptance Risk transference Risk mitigation

Risk Response Planning Example 2 of 4 team members don’t know the required programming language Mitigate—send developers on training program and assign each a development partner to oversee work. If our small business software causes any problems due to bugs that we have not uncovered, or misuse, we might get sued. Transfer to 3rd party—purchase liability insurance. Add liability limitation claims to software. The technology we’re planning to use is really leading edge; we would be the first (we want to wow our customers!) Eliminate. We can’t afford the investment unless it works. Go with the older, proven technology. Our competitors are developing similar products. They might finish first. Accept. Our suite of products needs this product. We need it to stay in business.