University of Sunderland COMM80 Risk Assessment of Systems ChangeUnit 10 Decision Points COMM80: Risk Assessment of Systems Change Unit 10

University of Sunderland COMM80 Risk Assessment of Systems ChangeUnit 10 Objectives of Session Coverage To examine where and when decision points arise. To determine how decisions are made for different methods/perspectives.

University of Sunderland COMM80 Risk Assessment of Systems ChangeUnit 10 Decision points. At various times during a project information may become available that allows a decision to be made to –continue, –abandon, or –modify activities. This may be on basis of –financial cost –personnel availability –expertise availability, ….

University of Sunderland COMM80 Risk Assessment of Systems ChangeUnit 10 Continue or Abandon? How to evaluate the impact? As examples we’ll consider three approaches: –Discounted Cash Flow and Sensitivity Analysis. –RAMESES risk gauges –Riskit Pareto Scenarios.

University of Sunderland COMM80 Risk Assessment of Systems ChangeUnit 10 DCF and Financial Justification Often financial justifications are main factor in deciding whether a project is approved or cancelled. –So although not only (or best) approach for decision making it is a critical one. –Therefore, project managers must put the best case they can with figures that are as accurate as possible to enable a good decision to be made.

University of Sunderland COMM80 Risk Assessment of Systems ChangeUnit 10 Cost Benefit and Discounted Cash Flow Analysis Cost Benefit Analysis –Enables complete financial enumeration of the consequences of going ahead with the project –Includes sensitivity analysis. Discounted Cash Flow –Money today is worth less in the future because of losses due to the interest rate (= discount rate) –DCF enables calculation of the Net Present Value for a project. –Enables the viability of a project to be assessed from its NPV.

University of Sunderland COMM80 Risk Assessment of Systems ChangeUnit 10 Discounted Cash Flow Allows decision makers to “play” with figures to see how confident they need to be in their predictions. Enables the viability of a project to be assessed from its NPV. If values are guesses or estimates alerts users to the uncertainty of the decision making

University of Sunderland COMM80 Risk Assessment of Systems ChangeUnit 10 Sensitivity Analysis Allows decision makers to “play” with figures to see how confident they need to be in their predictions. If very sensitive to changes - e.g. rise/fall in sales of 1% can make difference between gain/loss then need to be very sure of the accuracy of the figures used, and the model. Altering different variables one at a time will show which variables the project is sensitive to. –i.e. small changes in one variable may affect the NPV significantly.

University of Sunderland COMM80 Risk Assessment of Systems ChangeUnit 10 Example of Benefits, Costs and NPV for Proposed ERP System At end of 3 years Net Present Value is positive: so implies go ahead

University of Sunderland COMM80 Risk Assessment of Systems ChangeUnit 10 Sensitivity Analysis for change in Increased Sales

University of Sunderland COMM80 Risk Assessment of Systems ChangeUnit 10 Sensitivity Analysis for Change in Saved Raw Materials

University of Sunderland COMM80 Risk Assessment of Systems ChangeUnit 10 RAMESES Risk Gauges RG1: Change Consensus – purpose: to assess agreement among the Senior management team (SMT). RG2: Change Context –purpose: to assess the SMT’s perception of the context of the proposed changes. –purpose: to assess the SMT’s perception of past company experience.

University of Sunderland COMM80 Risk Assessment of Systems ChangeUnit 10 RG1: Change Consensus

University of Sunderland COMM80 Risk Assessment of Systems ChangeUnit 10 RG1: Change Consensus

University of Sunderland COMM80 Risk Assessment of Systems ChangeUnit 10 RG1: Change Consensus Identified change: Implementation of new ERP system to replace packages currently used with an integrated solution Justification of need for change: Our system is out of date and difficult to maintain and We know we are not operating at best efficiency and wish to investigate further. Consensus among SMT: Strongly Agree: 2, Agree: 1, No view: 1, Disagree: 0

University of Sunderland COMM80 Risk Assessment of Systems ChangeUnit 10 RG2: Change Context Considers –Project Timescale –Project Scope –Nature of Project –Cost of Project

University of Sunderland COMM80 Risk Assessment of Systems ChangeUnit 10 RG 2: Change Consensus

University of Sunderland COMM80 Risk Assessment of Systems ChangeUnit 10 RG 2: Change Consensus

University of Sunderland COMM80 Risk Assessment of Systems ChangeUnit 10 RG 2: Change Consensus

University of Sunderland COMM80 Risk Assessment of Systems ChangeUnit 10 RG 2: Change Consensus

University of Sunderland COMM80 Risk Assessment of Systems ChangeUnit 10 RG2: Timeframes Where project is believed to fit.

University of Sunderland COMM80 Risk Assessment of Systems ChangeUnit 10 RG2: Nature of Change Where project is believed to fit.

University of Sunderland COMM80 Risk Assessment of Systems ChangeUnit 10 RG2: Scope Where project is believed to fit.

University of Sunderland COMM80 Risk Assessment of Systems ChangeUnit 10 RG2: Cost Where project is believed to fit.

University of Sunderland COMM80 Risk Assessment of Systems ChangeUnit 10 Riskit Pareto Scenarios: Scenario Development The Riskit approach aids risk analysts –to map out specific high risk scenarios and then –undertake comparative evaluation of them. This helps to focus on which should be –tracked, –have mitigation strategies and –contingency plans.

University of Sunderland COMM80 Risk Assessment of Systems ChangeUnit 10 Riskit Pareto Scenarios: Scenario Development

University of Sunderland COMM80 Risk Assessment of Systems ChangeUnit 10 Riskit Pareto Scenarios: Two Example Scenarios

University of Sunderland COMM80 Risk Assessment of Systems ChangeUnit 10 Riskit Pareto Scenarios: Using Pareto-efficient sets Risk Scenario probability Utility loss Rank1 (e.g. almost certain., 0.9) Rank2 (e.g. very likely, 0.75) Rank3 (e.g.likely, 0.6). …Rank n (e.g. almost impossible, 0.1) Rank1 (e.g. catastrophic) Scenario1 Scenario2 … Rank2 (e.g. critical) Scenario4 Scenario3 … Rank3 (e.g. severe) Scenario5Scenario6 … ……………… Rank m (e.g. minimal) Scenario7 …

University of Sunderland COMM80 Risk Assessment of Systems ChangeUnit 10 Using Riskit Pareto Scenarios Once the scenarios have all been mapped in agreement with the stakeholders a judgement can be made about which need to be given attention and tracked. If any are ranked “1” on both the utility loss probability scales (or are near these values): –then they have a high chance of sinking your project and decisions must be made about what to do. –Mitigation strategies and contingency plans must be developed.