Project Risk Management
Learning Objectives
Understand what risk is and the importance of good
project risk management
Discuss the elements involved in risk management
planning and List common sources of risks on information
technology projects
Describe the risk identification and analysis process and
tools and techniques to help identify project risks
Discuss what is involved in change and risk monitoring
and control
The Importance of Project Risk Management
Project risk management is the art and science of
identifying, assessing, and responding to risk throughout
the life of a project and in the best interests of meeting
project objectives
Risk management is often overlooked on projects, but it
can help improve project success by helping select good
projects, determining project scope, and developing
realistic estimates
A number of studies show how risk management is
neglected, especially on IT projects
What is Risk?
A dictionary definition of risk is “the possibility of
loss or injury”
Project risk involves understanding potential
problems that might occur on the project and how
they might impede project success
Risk management is like a form of insurance; it is
an investment
Major Process of Risk Management?
The goal of project risk management is to minimize potential risks while
maximizing potential opportunities. Major processes include
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 their characteristics
Qualitative risk analysis: characterizing and analyzing risks and
prioritizing their effects on project objectives
Quantitative risk analysis: measuring the probability and
consequences of risks
Risk response planning: taking steps to enhance opportunities and
reduce threats to meeting project objectives
Risk monitoring and control: monitoring known risks, identifying new
risks, reducing risks, and evaluating the effectiveness of risk
reduction
Risk Management Planning
The main output of risk management planning is a
risk management plan
The project team should review project documents
and understand the organization’s and the sponsor’s
approach to risk
The level of detail will vary with the needs of the
project
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
Contingency reserves or allowances are provisions
held by the project sponsor that can be used to
mitigate cost or schedule risk if changes in scope or
quality occur
Common Sources of Risk on Information
Technology Projects
Several studies show that IT projects share some
common sources of risk
The Standish Group developed an IT success
potential scoring sheet based on potential risks
McFarlan developed a risk questionnaire to help
assess risk
Other broad categories of risk help identify
potential risks
Information Technology Success
Potential Scoring Sheet
Success Criterion Points
User Involvement 19
Executive Management support 16
Clear Statement of Requirements 15
Proper Planning 11
Realistic Expectations 10
Smaller Project Milestones 9
Competent Staff 8
Ownership 6
Clear Visions and Objectives 3
Hard-Working, Focused Staff 3
Total 100
McFarlan’s Risk Questionnaire
1. What is the project estimate in calendar (elapsed) time?
( ) 12 months or less Low = 1 point
( ) 13 months to 24 months Medium = 2 points
( ) Over 24 months High = 3 points
2. What is the estimated number of person days for the system?
( ) 12 to 375 Low = 1 point
( ) 375 to 1875 Medium = 2 points
( ) 1875 to 3750 Medium = 3 points
( ) Over 3750 High = 4 points
3. Number of departments involved (excluding IT)
( ) One Low = 1 point
( ) Two Medium = 2 points
( ) Three or more High = 3 points
4. Is additional hardware required for the project?
( ) None Low = 0 points
( ) Central processor type change Low = 1 point
( ) Peripheral/storage device changes Low = 1
( ) Terminals Med = 2
( ) Change of platform, for example High = 3
PCs replacing mainframes
Other Categories of Risk
Market risk: Will the new product be useful to the
organization or marketable to others? Will users accept
and use the product or service?
Financial risk: Can the organization afford to undertake
the project? Is this project the best way to use the
company’s financial resources?
Technology risk: Is the project technically feasible?
Could the technology be obsolete before a useful
product can be produced?
Risk Identification
Risk identification is the process of understanding what
potential unsatisfactory outcomes are associated with a
particular project
Several risk identification tools and techniques include
Brainstorming
Interviewing
SWOT analysis
Potential Risk Conditions Associated with Each Knowledge Area
Knowledge Area Risk Conditions
Integration Inadequate planning; poor resource allocation; poor integration
management; lack of post-project review
Scope Poor definition of scope or work packages; incomplete definition
of quality requirements; inadequate scope control
Time Errors in estimating time or resource availability; poor allocation
and management of float; early release of competitive products
Cost Estimating errors; inadequate productivity, cost, change, or
contingency control; poor maintenance, security, purchasing, etc.
Quality Poor attitude toward quality; substandard
design/materials/workmanship; inadequate quality assurance
program
Human Resources Poor conflict management; poor project organization and
definition of responsibilities; absence of leadership
Communications Carelessness in planning or communicating; lack of consultation
with key stakeholders
Risk Ignoring risk; unclear assignment of risk; poor insurance
management
Procurement Unenforceable conditions or contract clauses; adversarial relations
Qualitative Risk Analysis
Assess the likelihood and impact of identified risks to
determine their magnitude and priority
Risk quantification tools and techniques include
Probability/Impact matrixes
The Top 10 Risk Item Tracking technique
Expert judgment
Sample Probability/Impact Matrix
Top 10 Risk Item Tracking
Top 10 Risk Item Tracking is a tool for maintaining
an awareness of risk throughout the life of a
project
Establish a periodic review of the top 10 project
risk items
List the current ranking, previous ranking, number
of times the risk appears on the list over a period
of time, and a summary of progress made in
resolving the risk item
Example of Top 10 Risk Item Tracking
Monthly Ranking
Risk Item This Last Number Risk Resolution
of Months Progress
Month Month
Inadequate 1 2 4 Working on revising the
planning entire project plan
Poor definition 2 3 3 Holding meetings with
of scope project customer and
sponsor to clarify scope
Absence of 3 1 2 Just assigned a new
leadership project manager to lead
the project after old one
quit
Poor cost 4 4 3 Revising cost estimates
estimates
Poor time 5 5 3 Revising schedule
estimates estimates
Expert Judgment
Many organizations rely on the intuitive feelings
and past experience of experts to help identify
potential project risks
Experts can categorize risks as high, medium, or
low with or without more sophisticated techniques
Quantitative Risk Analysis
Often follows qualitative risk analysis, but both
can be done together or separately
Large, complex projects involving leading edge
technologies often require extensive quantitative
risk analysis
Main techniques include
decision tree analysis
Simulation
Read on these
Risk Response Planning
After identifying and quantifying risks, you must decide
how to respond to them
Four main strategies:
Risk avoidance: eliminating a specific threat or risk, usually by
eliminating its causes
Risk acceptance: accepting the consequences should a risk
occur
Risk transference: shifting the consequence of a risk and
responsibility for its management to a third party
Risk mitigation: reducing the impact of a risk event by
reducing the probability of its occurrence
General Risk Mitigation Strategies
for Technical, Cost, and Schedule
Risks
Risk Monitoring and Control
Monitoring risks involves knowing their status
Controlling risks involves carrying out the risk
management plans as risks occur
Workarounds are unplanned responses to risk
events that must be done when there are no
contingency plans
The main outputs of risk monitoring and control
are corrective action, project change requests,
and updates to other plans.
Risk Response Control
Risk response control involves executing the risk
management processes and the risk management
plan to respond to risk events
Risks must be monitored based on defined
milestones and decisions made regarding risks
and mitigation strategies
Sometimes workarounds or unplanned responses
to risk events are needed when there are no
contingency plans
Using Software to Assist in
Project Risk Management
Databases can keep track of risks. Many IT
departments have issue tracking databases
Spreadsheets can aid in tracking and quantifying
risks
More sophisticated risk management software,
such as Monte Carlo simulation tools, help in
analyzing project risks
Results of Good Project Risk
Management
Unlike crisis management, good project risk
management often goes unnoticed
Well-run projects appear to be almost effortless,
but a lot of work goes into running a project well
Project managers should strive to make their
jobs look easy to reflect the results of well-run
projects
Project Quality Management
Objectives
Define quality and how it relates to various aspects of
information technology projects
Describe what is involved in quality planning, quality
assurance, and quality control on projects
Explain quality control tools and techniques such as
Pareto charts, statistical sampling, quality control
charts..
Describe key issues related to improving quality in
information technology projects
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What Is Quality?
The International Organization for Standardization
(ISO) defines quality as the totality of characteristics
of an entity that bear on its ability to satisfy stated or
implied needs
Other experts define quality based on
Conformance to requirements: meeting written
specifications
Fitness for use: ensuring a product can be used as it
was intended
Cont..
Quality from different perspectives
End User
Owner/ manager
Solution Provider
Quality Management?
Quality concepts that are critical to the
achievement of quality in projects and project
management.
Maximizing the satisfaction of customers’ and stakeholders’
needs is paramount
All work is carried out as a set of planned and interlinked
process
Quality must be built into both products & processes
Management is responsible for creating a climate for
quality
Management is responsible for continuous improvement
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Project Quality Management
Processes
Quality planning: identifying which quality
standards are relevant to the project and how to
satisfy them
Quality assurance: evaluating overall project
performance to ensure the project will satisfy the
relevant quality standards
Quality control: monitoring specific project
results to ensure that they comply with the
relevant quality standards while identifying ways
to improve overall quality
Quality Planning
It is important to design in quality and
communicate important factors that directly
contribute to meeting the customer’s
requirements
Design of experiments helps identify which
variables have the most influence on the overall
outcome of a process
Many scope aspects of IT projects affect quality
like functionality, features, system outputs,
performance, reliability, and maintainability
Quality Assurance
Quality assurance includes all the activities related
to satisfying the relevant quality standards for a
project
Another goal of quality assurance is continuous
quality improvement
Benchmarking can be used to generate ideas for
quality improvements
Quality audits help identify lessons learned that
can improve performance on current or future
projects
Quality Control
Is checking the project out put for its
quality.
The main outputs of quality control are
acceptance decisions
rework
process adjustments
Cont…
Some tools and techniques include
Pareto analysis
statistical sampling (to work on sample
area)
quality control charts (to represent in
charts )
Pareto Analysis
Pareto analysis involves identifying the vital few contributors
that account for the most quality problems in a system
Also called the 80-20 rule, meaning that 80% of problems are
often due to 20% of the causes.
Arranges the phenomena or values in order of frequency of
occurrence in order that the most prevalent can be quickly
identified
Pareto diagrams are histograms that help identify and
prioritize problem areas
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Sample Pareto Diagram
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Testing/evaluation
Many IT professionals think of testing as a stage
that comes near the end of IT product
development
Testing should be done during almost every
phase of the IT product development life cycle
As there are deliverables at the end of each
major tasks
Types of Tests- System development
A unit test is done to test each individual component
(often a program) to ensure it is as defect free as
possible
Integration testing occurs between unit and system
testing to test functionally grouped components
System testing tests the entire system as one entity
User acceptance testing is an independent test
performed by the end user prior to accepting the
delivered system
Also requirement, designs, and UIs should be tested at
their appropriate time.
This applies to all types of IT projects – test early, often
and in levels
Modern Quality Management
Modern quality management
requires customer satisfaction
prefers prevention to inspection
recognizes management responsibility for
quality
Noteworthy quality experts include Deming,
Juran, Crosby, Ishikawa, Taguchi, and
Feigenbaum
Quality Experts
Deming was famous for his work in rebuilding
Japan and his 14 points regarding quality (read)
Juran wrote the Quality Control Handbook and 10
steps to quality improvement
Crosby wrote Quality is Free and suggested that
organizations strive for zero defects
Ishikawa developed the concept of quality circles
and pioneered the use of Fishbone diagrams
Taguchi developed methods for optimizing the
process of engineering experimentation
Feigenbaum developed the concept of total quality
control
Sample Fishbone or Ishikawa Diagram
Improving Information
Technology Project Quality
Several suggestions for improving quality for IT
projects include
Leadership that promotes quality
Understanding the cost of quality
Focusing on organizational influences and workplace
factors that affect quality
Following maturity models to improve quality
Leadership
“It is most important that top management be
quality-minded. In the absence of sincere
manifestation of interest at the top, little will
happen below.” (Juran, 1945)
A large percentage of quality problems are
associated with management, not technical issues
The Cost of Quality
The cost of quality is
the cost of conformance or delivering products
that meet requirements and fitness for use
the cost of nonconformance or taking
responsibility for failures or not meeting
quality expectations
Costs Per Hour of Downtime
Caused by Software Defects
Business Cost per Hour Downtime
Automated teller machines (medium-sized bank) $14,500
Package shipping service $28,250
Telephone ticket sales $69,000
Catalog sales center $90,000
Airline reservation center (small airline) $89,500
Five Cost Categories Related to
Quality
Prevention cost: the cost of planning and executing a
project so it is error-free or within an acceptable error
range
Appraisal cost: the cost of evaluating processes and their
outputs to ensure quality
Internal failure cost: cost incurred to correct an identified
defect before the customer receives the product
External failure cost: cost that relates to all errors not
detected and corrected before delivery to the customer
Measurement and test equipment costs: capital cost of
equipment used to perform prevention and appraisal
activities
Using Software to Assist in
Project Quality Management
Spreadsheet and charting software helps create
Pareto diagrams, Fishbone diagrams, etc.
Statistical software packages help perform
statistical analysis
Project management software helps create Gantt
charts and other tools to help plan and track work
related to quality management
