1. The IT Outsourcing Risks:
Sources Of Risk

2. Software Development Problems
Range of Intervention Theory
Prevention, Treatment and Maintenance
Planning, Development and Use
Cost of Intervention

3. The Importance of Risk Management
Risk management is the art and science of identifying, analyzing, and responding to risk throughout the life of a project and in the best interests of meeting project objectives.
Risk management is often overlooked in projects, but it can help improve project success by helping select good projects, determining project scope, and developing realistic estimates.

4. Benefits from Software Risk Management Practices*
*Kulik, Peter and Catherine Weber, “Software Risk Management Practices – 2001,” KLCI Research Group (August 2001).

5. Project Risk Management Processes
Risk management planning: Deciding how to approach and plan the risk management activities for the project.
Risk identification: Determining which risks are likely to affect a project and documenting the characteristics of each.
Qualitative risk analysis: Prioritizing risks based on their probability and impact of occurrence.

6. Project Risk Management Processes (cont’d)
Quantitative risk analysis: Numerically estimating the effects of risks on project objectives.
Risk response planning: Taking steps to enhance opportunities and reduce threats to meeting project objectives.
Risk monitoring and control: Monitoring identified and residual risks, identifying new risks, carrying out risk response plans, and evaluating the effectiveness of risk strategies throughout the life of the project.

7. Risk Management Planning
The main output of risk management planning is a risk management plan—a plan that documents the procedures for managing risk throughout a project.
The project team should review project documents and understand the organization’s and the sponsor’s approaches to risk.
The level of detail will vary with the needs of the project.

8. Table 11-2. Topics Addressed in a Risk Management Plan
Methodology
Roles and responsibilities
Budget and schedule
Risk categories
Risk probability and impact
Risk documentation

9. Contingency and Fallback Plans, Contingency Reserves
Contingency plans are predefined actions that the project team will take if an identified risk event occurs.
Fallback plans are developed for risks that have a high impact on meeting project objectives, and are put into effect if attempts to reduce the risk are not effective.
Contingency reserves or allowances are provisions held by the project sponsor or organization to reduce the risk of cost or schedule overruns to an acceptable level.

10. Common risk factors for IT Projects
Lack of top management commitment to the project
Failure to gain user commitment
Misunderstanding the requirement
Lack of adequate user involvement
Failure to manage end user expectation
Changing scope and objectives
Lack of required knowledge/skill in the project personnel
New technology
Insufficient / inappropriate staffing
Conflict between user departments

11. Information Technology Success Potential Scoring Sheet

12. Broad Categories of Risk
Market risk
Financial risk
Technology risk
People risk
Structure/process risk

13. Risk Breakdown Structure
A risk breakdown structure is a hierarchy of potential risk categories for a project.
Similar to a work breakdown structure but used to identify and categorize risks.

14. Figure 11-3. Sample Risk Breakdown Structure

15. Risk Identification
Risk identification is the process of understanding what potential events might hurt or enhance a particular project.
Risk identification tools and techniques include:
Brainstorming
Interviewing
SWOT analysis

16. Brainstorming
Brainstorming is a technique by which a group attempts to generate ideas or find a solution for a specific problem by amassing ideas spontaneously and without judgment.
An experienced facilitator should run the brainstorming session.
Be careful not to overuse or misuse brainstorming.

17. Interviewing
Interviewing is a fact-finding technique for collecting information in face-to-face, phone, , or instant-messaging discussions.
Interviewing people with similar project experience is an important tool for identifying potential risks.

18. SWOT Analysis
SWOT analysis (strengths, weaknesses, opportunities, and threats) can also be used during risk identification.
Helps identify the broad negative and positive risks that apply to a project.

19. Risk Register
The main output of the risk identification process is a list of identified risks and other information needed to begin creating a risk register.
A risk register is:
A document that contains the results of various risk management processes and that is often displayed in a table or spreadsheet format.
A tool for documenting potential risk events and related information.
Risk events refer to specific, uncertain events that may occur to the detriment or enhancement of the project.

20. Risk Register Contents
An identification number for each risk event.
A rank for each risk event.
The name of each risk event.
A description of each risk event.
The category under which each risk event falls.
The root cause of each risk.

21. Risk Register Contents (cont’d)
Triggers for each risk; triggers are indicators or symptoms of actual risk events.
Potential responses to each risk.
The risk owner or person who will own or take responsibility for each risk.
The probability and impact of each risk occurring.
The status of each risk.

22. Table 11-5. Sample Risk Register/ Risk Analysis
No.
Rank
Risk
Description
Category
Root
Cause
Triggers
Potential
Responses
Owner
Probability
Impact
Severity
Status
R44 1
R21 2 R7 3
Project severity = expectation (1-10) * impact (1-10)
When should risk analysis be formed?
Is not a time activity
Periodic update and reviewed

23. Calculating severity Problem Expectation Impact Severity 6 5 30 8 40
Staff 6 5 30
Late delivery of hardware 8 40
Communication and Networks problem 25
Project severity = expectation (1-10) * impact (1-10)

24. Management Practices…..
Major Risks Come From
Management Practices…..
Poor analysis of supplier strategy and capabilities
IT treated as undifferentiated commodity
Cash injection looked for rather than business advantage
Incomplete contracting
Difficulties constructing/adapting deals for
business/technological change
Poor sourcing/contracting for new technologies
Lack of maturity/experience with long-term ‘total’ outsourcing
Failure to retain requisite capabilities/skills for active
contract and relationship management
Power asymmetries developing in favour of vendor
Unrealistic expectations with multiple objectives
(Source: Lacity & Willcocks, 2001)

25. Main Risks in Outsourcing
Other
Industrial relations with internal staff
No Learning from vendor about IT
Systems interconnectedness adversely affected
Loss of control over strategic use of IT
New IT expertise from vendor fails to materialise
Loss of control over IT operations
Lack of expertise in managing contracts
Irreversibility of contract
Credibility of vendor claims
Hidden costs of contract
Points

26. Risk Mitigations Plan Learn from Experience
Follow a the maturity model.
Best Practice / Multi-sourcing approach
Know what to outsource
Use the frameworks from previous classes

27. Performing / Strategic Focus (Not just focusing on cost)
Stages 5 4 3 2 1
Performing / Strategic Focus (Not just focusing on cost)
Norming / Proactive Cost Focus (Beginning to form norms and actively focusing and proactively using outsourcing for cost saving including offshore. Outsourcing 20-40% of IT activities)
Storming / Strategic decision point (Organization leaders share conflicting ideas about outsourcing and pursuing different strategy to provide IT services)
Forming / experimenting stage (outsourcing between 10-20% of IT activities)
Insourcing / Bystander
(outsourcing between 1-5% of IT. Mostly purchasing of IT functions).
Time

28. Risk Mitigations Plan Outsourcing: Type and Scope Best-in-class
In case of multi-sourcing
Ability of suppliers to work together
Short term deals better than long term deals

29. Vendor Selection Criteria and Process
Check Xerox and General Dynamics case studies
Best fit
Ability

30. …And Unrealistic Expectations: The IT Cost/Service Trade-off
Minimal Cost
Premium Cost
Premium
Service
Minimal
‘Superstar’
Senior management’s
and users’ expectations
of IT
‘Rolls Royce’
Realm of feasible
IT performance
‘Black Hole’
‘Chevrolet’
Senior management’s
and users’ perceptions
of IT
Realm of feasible IT
performance