Chapter 8 Managing Project Risk Copyright 2012 John Wiley & Sons, Inc. 8-1

Importance of Project Risk Management The art and science of identifying, analyzing, & responding to risk throughout the life of a project and in the best interests of meeting project objectives 2

Importance of Project Risk Management The art and science of identifying, analyzing, & responding to risk throughout the life of a project and in the best interests of meeting project objectives 3

PMBOK ® Risk Management Processes Plan Risk Management  Determining how to approach and plan the project risk management activities. An output of this process is the development of a risk management plan. Identify Risks  Deciding which risks can impact the project. Risk identification generally includes many of the project stakeholders and requires an understanding of the project’s goal, as well as the project’s scope, schedule, budget, and quality objectives. Perform Qualitative Risk Analysis  Focusing on a qualitative analysis concerning the impact and likelihood of the risks that were identified. Perform Quantitative Risk Analysis  Using a quantitative approach for developing a probabilistic model for understanding and responding to the risks identified. Plan Risk Responses  Developing procedures and techniques to reduce the threats of risks, while enhancing the likelihood of opportunities. Monitor and Control Risks  Providing an early warning system to monitor identified risks and any new risks. This system ensures that risk responses have been implemented as planned and had the effect as intended. 8-4

Managing Project Risk Common Mistakes: Effective/Successful Risk Management: 8-5

Benefits from Software Risk Management Practices* 6 *Source: Kulik and Weber, KLCI Research Group

Definitions Risk Project Risk Management (PMBOK ® ) 8-7

Risk Utility What is your risk tolerance?

Risk Utility You are on a TV game show and can choose one of the following. Which would you take? a. $1,000 in cash b. A 50% chance at winning $5,000 c. A 25% chance at winning $10,000 d. A 5% chance at winning $100,000 You have just finished saving for a "once-in-a-lifetime" vacation. Three weeks before you plan to leave, you lose your job. You would: a.Cancel the vacation b.Take a much more modest vacation c.Go as scheduled, reasoning that you need the time to prepare for a job search d.Extend your vacation, because this might be your last chance to go first-class 9

Common Sources of Risk in Information Technology Projects The Standish Group developed an IT success potential scoring sheet based on potential risks 10

IT Project Risk Management Processes 8-11

Risk Planning 8-12

Risk Identification Framework IT Project Risk Identification Framework 8-13

Applying the framework 14

Risk Identification Tools & Techniques Learning Cycles Brainstorming Nominal Group Technique Delphi Technique Interviews Checklists SWOT Analysis Cause & Effect (a.k.a. Fishbone/Ishikawa) Past Projects 8-15

Nominal Group Technique (NGT) Each individual silently writes their ideas on a piece of paper 2.Each idea is then written on a board or flip chart one at a time in a round-robin fashion until each individual has listed all of his or her ideas 3.The group then discusses and clarifies each of the ideas 4.Each individual then silently ranks and prioritizes the ideas 5.The group then discusses the rankings and priorities 6.Each individual ranks and prioritizes the ideas again 7.The rankings and prioritizations are then summarized for the group

Risk Check List 8-17  Funding for the project has been secured  Funding for the project is sufficient  Funding for the project has been approved by senior management  The project team has the requisite skills to complete the project  The project has adequate manpower to complete the project  The project charter and project plan have been approved by senior management or the project sponsor  The project’s goal is realistic and achievable  The project’s schedule is realistic and achievable  The project’s scope has been clearly defined  Processes for scope changes have been clearly defined

SWOT Analysis 8-18

Cause & Effect Diagram 8-19

Risk Breakdown Structure 20

Risks involved in MAA project 21

8-22 Risk Analysis & Assessment Can’t respond to all risks! Depends on Stakeholder risk tolerances

Risk Analysis & Assessment Qualitative Approaches 8-23

A B A*B Schedule RiskProbability Payoff (In thousands) Prob * Payoff (In thousands) Project completed 20 days early5% $ 200$10 Project completed 10 days early20% $ 150$30 Project completed on Schedule50% $ 100$50 Project completed 10 days late20% $ -$0 Project completed 20 days late5% $ (50)($3) 100% $88 Payoff Table The Expected Value 8-24

Decision Tree Analysis 8-25

% 0-10 P*I Risk (Threats) ImpactScore Key project team member leaves project Client unable to define scope and requirements Client experiences financial problems Response time not acceptable to users/client Technology does not integrate with existing application Functional manager deflects resources away from project Client unable to obtain licensing agreements Risk Impact Table 8-26 Rank