Risk Management

What is Risk?
A risk is a potential problem – it might happen and it might not

Two characteristics of risk

– Uncertainty – the risk may or may not happen, that is, there are no 100%
risks

– Loss – the risk becomes a reality and unwanted consequences or losses

occur
 Risk Categorization
1. Project risks
 They threaten the project plan
 If they become real, it is likely that the project schedule will slip and that
costs will increase
 Eg:- Requirements are not fixed
2. Technical risks
 They threaten the quality and timeliness of the software to be produced
 If they become real, implementation may become difficult or impossible
 Eg:-Technology will not meet the expectation
3. Business risks
1. They threaten the viability of the software to be built
2. Eg:- Delivery Deadline will not meet
 Risk Categorization
Sub-categories of Business risks
a) Market risk – building an excellent product or system that no one really
wants
b) Strategic risk – building a product that no longer fits into the overall
business strategy for the company
c) Sales risk – building a product that the sales force doesn't understand
how to sell
d) Management risk – losing the support of senior management due to a
change in focus or a change in people
e) Budget risk – losing budgetary or personnel commitment

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 Risk Strategies
• Reactive risk strategies
"Don't worry, I'll think of something“
Nothing is done about risks until something goes wrong
• The team then flies into action in an attempt to correct the problem rapidly
(fire fighting approach)
• Proactive risk strategies
– Primary objective is to avoid risk and to have a contingency plan in place
to handle unavoidable risks in a controlled and effective manner
“Risk& Reward” “Plan for the risk” to earn a “reward”
 Steps for Risk Management
Identify
possible risks

Develop a
Analyze
contingency
each risk
plan
high probability
high impact Rank the risks
by probability
and impact

Impact may be
negligible,
marginal,
critical,
catastrophic

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 Background
Generic risks
Risks that are a potential threat to every software project
Product-specific risks
Risks that can be identified only by those a with a clear understanding of the
technology, the people, and the environment that is specific to the
software that is to be built
This requires examination of the project plan and the statement of scope
"What special characteristics of this product may threaten our project plan?"
 Risk Item Checklist
(Risk Categories)
• Product size – risks associated with overall size of the software to be
built
• Business impact – risks associated with constraints imposed by
management or the marketplace
• Customer characteristics – risks associated with sophistication of the
customer and the developer's ability to communicate with the customer
in a timely manner
• Process definition – risks associated with the degree to which the
software process has been defined and is followed
• Development environment – risks associated with availability and
quality of the tools to be used to build the project
• Technology to be built – risks associated with complexity of the
system to be built and the "newness" of the technology in the system
• Staff size and experience – risks associated with overall technical and
project experience of the software engineers who will do the work
 Questionnaire on Project Risk
(Questions are ordered by their relative importance to project success)

1) Have top software and customer managers formally committed to

support the project?
2) Are end-users enthusiastically committed to the project and the
system/product to be built?
3) Are requirements fully understood by the software engineering team
and its customers?
4) Have customers been involved fully in the definition of
requirements?
5) Do end-users have realistic expectations?
6) Is the project scope stable?
 Questionnaire on Project Risk
(continued)
7) Does the software engineering team have the right mix of skills?
8) Are project requirements stable?
9) Does the project team have experience with the technology to be
implemented?
10) Is the number of people on the project team adequate to do the job?
11) Do all customer/user constituencies agree on the importance of the
project and on the requirements for the system/product to be built?
 Risk Components and Drivers
• The project manager identifies the risk drivers that affect the following risk
components
a) Performance risk - the degree of uncertainty that the product will meet its
requirements and be fit for its intended use
b) Cost risk - the degree of uncertainty that the project budget will be maintained
c) Support risk - the degree of uncertainty that the resultant software will be easy
to correct, adapt, and enhance
d) Schedule risk - the degree of uncertainty that the project schedule will be
maintained and that the product will be delivered on time

• The impact of each risk driver on the risk component is divided into one of
four impact levels
– Negligible, marginal, critical, and catastrophic

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Risk Projection (Estimation)
 Background
• Risk projection (or estimation) attempts to rate each risk in two ways
– The probability that the risk is real
– The consequence of the problems associated with the risk, should it occur
Risk Projection/Estimation Steps
1) Establish a scale that reflects the perceived likelihood of a risk
(e.g., 1-low, 10-high)
1) Delineate the consequences of the risk
2) Estimate the impact of the risk on the project and product
3) Note the overall accuracy of the risk projection so that there will be
no misunderstandings
 Contents of a Risk Table
• A risk table provides a project manager with a simple technique for
risk projection
• It consists of five columns
– Risk Summary – short description of the risk
– Risk Category – one of seven risk categories
– Probability – estimation of risk occurrence based on group input
– Impact – (1) catastrophic (2) critical (3) marginal (4) negligible
– RMMM – Pointer to a paragraph in the Risk Mitigation, Monitoring, and
Management Plan

Risk Summary Risk Category Probability Impact (1-4) RMMM

 Developing a Risk Table
• List all risks in the first column (by way of the help of the risk item
checklists)
• Mark the category of each risk
• Estimate the probability of each risk occurring
• Assess the impact of each risk based on an averaging of the four risk
components to determine an overall impact value
• Sort the rows by probability and impact in descending order
• Draw a horizontal cutoff line in the table that indicates the risks that
will be given further attention
The overall risk exposure formula is RE = P x C
– P = the probability of occurrence for a risk
– C = the cost to the project should the risk actually
occur

Example
P = 80% probability that 18 of 60 software
components will have to be developed
C = Total cost of developing 18 components is
$25,000

RE = .80 x $25,000 = $20,000

Risk Mitigation, Monitoring, and
Management
(RMMM)
 RMMM

• An effective strategy for dealing with risk must consider three issues
(Note: these are not mutually exclusive)
– Risk mitigation (i.e., avoidance)
– Risk monitoring
– Risk management and contingency planning
• Risk mitigation (avoidance) is the primary strategy and is achieved
through a plan
– Example: Risk of high staff turnover
 RMMM
Strategy for Reducing Staff Turnover
 Meet with current staff to determine causes for turnover (e.g., poor
working conditions, low pay, competitive job market)
 Mitigate those causes that are under our control before the project starts
 Once the project commences, assume turnover will occur and develop
techniques to ensure continuity when people leave
 Organize project teams so that information about each development
activity is widely dispersed
 Define documentation standards and establish mechanisms to ensure that
documents are developed in a timely manner
 Conduct peer reviews of all work (so that more than one person is "up to
speed")
 Assign a backup staff member for every critical technologist
 RMMM
• During risk monitoring, the project manager monitors factors that
may provide an indication of whether a risk is becoming more or less
likely
• Risk management and contingency planning assume that mitigation
efforts have failed and that the risk has become a reality
THANKS !