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The Project Balance Sheet
 

The Project Balance Sheet

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The project balance sheet is like its accounting cousin: a double-entry two-side view of the project. It reflects the sponsor's view and the PMO view and the gap in between

The project balance sheet is like its accounting cousin: a double-entry two-side view of the project. It reflects the sponsor's view and the PMO view and the gap in between

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    The Project Balance Sheet The Project Balance Sheet Presentation Transcript

    • Risk Analysis and The Project Balance Sheet John C. Goodpasture Square Peg Consulting John.g@sqpegconsulting.com Square Peg Consulting Copyright 2001, all rights reserved
    • Sponsors & PMs Sponsors have expectations (scope, payoff) and make resource commitments (time and money) PMs calculate capabilities and capacity for the specified scope and resources What happens if the former and the latter don’t equate? Somebody has to take a risk! Square Peg Consulting Copyright 2001, all rights reserved
    • Every project is a balance… Resources: time, Benefits, Investment $, staff, facilities Quality Value: Needs for Risk which Function stakeholders pay Feature Convenience Conformance to “requirements” Square Peg Consulting Copyright 2001, all rights reserved
    • Balancing the project Investor Project Manager Desired outcomes are Outcomes specified business driven in charter Deterministic, limited Resources are resources estimates Risk proportional to Risks arise from expected reward internal & external Unknowing of sources implementation Details drive risk and details resource estimates Project Equation: Resources committed = Resources estimated + Project risks Square Peg Consulting Copyright 2001, all rights reserved
    • “Risk balances Value with Capacity” Project Value from Project Estimate from the Top Down the Bottom Up Risk Investor’s Resource Commitment Scope Time Resources Management’s Expected Project’s Employment Return on Investment of Investment Square Peg Consulting Copyright 2001, all rights reserved
    • Sponsor’s view of the project Business case of customer needs and wants Financial Features measures & Functions imperatives Benefits Milestones for Resources operations Organizational assets committed Project capacity Business Risks and capability respond to value Square Peg Consulting Copyright 2001, all rights reserved
    • PMs view of the project Project values from goals and As much risk as is strategy Risk necessary to close any “gaps” Scope & Quality Time Cost & Resources Square Peg Consulting Copyright 2001, all rights reserved
    • Risk begins with business case translation to specification Project Verify deliverables with Business Case business case Sample the business Validate specification with case via elicitation and business case to discover analysis to develop sampling errors specification Requirements specification has Correct errors and “sampling errors” baseline Sampled points of the Requirements baseline business case Manage requirements •Identify change •Evaluate impact •Approve and apply change Square Peg Consulting Copyright 2001, all rights reserved
    • Project Balance Sheet Project Value Project Implementation Vision state: Describes the state of the Risk from requirements translation error organization when the business case is between business case and project plan satisfied Risk from misalignment between resources Business case baseline: Specifies the offered in the business case and the required benefits, scope of functionality implementation estimates and performance, resource input, and timeline for performance and payback Risk from the uncertainty that requirements may change during the course Business rules: Specifies the context, of the project constraints, and imposed rules that govern the project Requirements baseline as translated from the business case into an actionable requirements specification Functional releases: Sequence the satisfaction of the business case Implementation estimates of scope and quality, resources, and time Square Peg Consulting Copyright 2001, all rights reserved
    • PM’s risk impact chart Schedule Example Face Value of Expected EMV of Project Probability of Impact of Impact Impact @ Sponsor’s Occurrence Risky (Face Value x $15K per Day Expectation (0-100%) Outcome Probability) 60 days delay 5% 3 days $45K 10 days early 15% 1.5 days ($22.5K) Deliverables will be on time On-time 80% 0 days $0K and within delivery budget Expected Impact of Identified 6 days $22.5K Risk Square Peg Consulting Copyright 2001, all rights reserved
    • Distribution for schedule example Probability of Occurrence 0.80 0.15 Expected Outcome +6 days 0.05 10 days On-time 60 days late early Square Peg Consulting Copyright 2001, all rights reserved
    • Balance sheet view On-time delivery, within cost Manage to avoid 60 Risk days x $15K = $900 Time Cost & Resources Negotiate for 6 days & $22.K Scope & Quality Square Peg Consulting Copyright 2001, all rights reserved
    • What’s been learned? Every project employs risk to balance sponsor expectation with PM estimates. Project balance sheet is a tool for capturing the sponsor and PM view of the same project. Translating the sponsor view to the project view is a sampling process that has sample error. This is a risk source. Square Peg Consulting Copyright 2001, all rights reserved