SDPM - Lecture 6 - Risk management and project escalation

Leiden Institute of Advanced Computer Science

System s Development and Project
Management –
Risk management and project
escalation

Prof. Dr. Thomas Bäck

1

Leiden Institute of Advanced Computer Science Dates

Feb. 1 14:45 – 17:30 Introduction, Project Description
Feb. 2 13:45 – 16:30 STEP WISE Approach to Project Planning
Feb. 9 13:10 – 15:45 STEP WISE Approach to Project Planning,
SAVE ENERGY Case
Feb. 15 14:45 – 17:30 Selecting an Appropriate Software Dev.
Approach
Feb. 16 15:15 – 18:00 Activity Planning and Resource Allocation
Feb. 22 14:45 – 17:30 Software Effort Estimation
Feb. 23 13:15 – 15:45 Risk management, project escalation
Mar. 1 14:45 – 17:00 Exam
Mar. 2 13:45 – 16:30 Risk Management, Project monitoring and
control
Mar. 8 14:45 – 17:30 Software Quality Assurance
Mar. 9 13:45 – 16:30 Managing People; Contract Management
Mar. 18 15:00 – 17:00 Trade Fair
2


Deliverable Planning
February 18, midnight Assignment 1:
Project proposal ( bid )

February 25, midnight Assignment 2:
Project Plan including functional specification

March 7, midnight Assignment 3:
Deutsche Bank case, 5 ppt slides

March 1 (14:45 – 17:00) Exam
March 18 (15:00 – 17:00) Trade fair, Plantsoen 97, Leiden
(setup from 14:00)
March 18, midnight Assignment 4:
Personal reflection paper on project
management

3


STEP WISE overview
1. Identify project objectives 0. Select Project 2. Identify project infrastructure

3. Analyze pr. characteristics

4. Identify products and activities
Review lower
level detail
5. Estimate effort for activity
For each activity

6. Identify activity risks

10. Lower level planning 7. Allocate resources

9. Execute plan 8. Review / publicize plan

4


Evaluation

!   Not unusual to spend between 6-12 months
and 40% of total acquisition and
implementation cost on package evaluation
with major customers.
!   Make or buy?
!  Buying is attractive when money available but
other resources are short.
!  Hazards, because staff time and attention is
needed to manage such projects successfully.

5


Nature of risk

!   Describes non-desirable events or outcomes
(vs. opportunities)
!   Risk management concerned with:
!  Events or hazards
!  Outcomes or problems
!  Action plans
!   Includes assessment of likelihoods,
seriousness, costs and effectiveness of action

6


Types of risk

!   Caused by estimation difficulties
!  Some tasks are more difficult to estimate
!   Caused by assumptions made during
planning process
!  Important to continuously list all assumptions and
their likely effects
!   Eventualities: Unforeseen hazards occurring
!  Reduction through sound planning

7


Managing risk
Boehm s risk engineering task breakdown Risk
engineering

Risk
Risk analysis
management

Risk
Risk estimation Risk evaluation
identification

Risk planning Risk control Risk monitoring Risk directing Risk staffing

8


Managing risk (cont d)

!   Risk analysis:
!  Risk identification - listing all hazards which could
affect project
!  Risk estimation - likelihood and severeness of
hazards
!  Risk evaluation - ranking and determination of risk
aversion strategies

9


Managing risk (cont d)

!   Risk management:
!  Risk planning – drawing up contingency plans
!  Risk control – quality control and dealing with
emergent problems
!  Risk monitoring – an ongoing activity
!  Risk directing Day-to-day risk management
!  Risk staffing

10


Hazard identification

!   Application factors
!   Staff factors
!   Project factors Factors should be
!   Project methods considered for each
!   Hardware/software activity individually,
factors involving the whole
!   Changeover factors project team
!   Supplier factors
!   Environment factors
!   Health and safety
factors 11


Hazard analysis

!   Most favored ranking method is to calculate
risk exposure
!  Risk exposure RE = risk likelihood * risk impact
!   Alternative - scoring methods:
!  Likelihood
!  Impact
!  Timeframe

12


Hazard analysis (cont d)

!   Risk prioritization
!  Reducing risk exposure by decreasing likelihood
and/or impact
!  Contingency plans
!   Risk reduction leverage (RRL)
!  RRL=(REbefore-REafter)/risk reduction cost
!  Monetary values recommended
!  RRL > 1: We can gain from implementing the risk
reduction plan

13


Risk planning and control

!   Hazard prevention
!   Likelihood reduction
!   Risk avoidance
!   Risk transfer
!   Contingency planning

14


Evaluating schedule risks

!   In contrast to CPM, PERT requires three
estimates:
!  Most likely time (m)
!  Optimistic time (a)
!  Pessimistic time (b)
!   Activity-on-arrow diagram
!   te=(a+4m+b)/6, s=(b-a)/6, z=(T- te)/s
!   Expected duration te, s-dev s., no. of s-dev.s
between target and expected date z

15


Notation

Event number Target date

Standard
Expected date
deviation

16


Evaluating schedule risks (cont d)

1.  Use expected durations for forward pass
2.  Calculate standard deviations for each
project event (add squares and find square
root of sum)
3.  Calculate z-values - number of standard
deviations between expected and target
dates
If there are several possible
4.  Convert z-values to probabilities largest standard
Paths: take
deviation
17


Example: Convert to activity-on-arrow
diagram!
B
E
Duration 6

Duration 8
A C G

Duration 5
Duration 10 F Duration 4

D Duration 3

ES = day 0
Duration 9
18


Example: (now activity on arrow!)
3

B=6 6 E 8

8 10 G 11
1 A 2 C 4

0 5 10 4
7 F 9

D=9 3
5

19


Optimistic time
Most likely time
Complete the table Pessimistic time
Activity
a
m
b
te
s
z
T
Prob.

A
4
5
6

B
4
6
8

C
9
10
12

D
8
9
10

E
5
8
11

F
1
3
4

G
3
4
5

20


Example:
t_e and standard deviations
E
3 t=8
B G
A t=6 s=1 t=4
t=5 s=0.67 6 8 s=0.33
s=0.33
1 2 10 11
C 4
t=10.17
0
s=0.5 7 9

5 F
D t=2.83
9 s=0.5
s=0.33

21


(a+4m+b)/6
Complete the table (b-a)/6

Activit a m b te s z T Prob
y .
A 4 5 6 5 0.33
B 4 6 8 6 0.67
C 9 10 12 10.17 0.5
D 8 9 10 9 0.33
E 5 8 11 8 1
F 1 3 4 2.83 0.5
G 3 4 5 4 0.33
22


Example: Expected dates
E
3 t=8
B G
A t=6 s=1 t=4
11
t=5 s=0.67 6 8 s=0.33
s=0.33
15.17 23.17 10 11
1 2 C 4
t=10.17 23.17 27.17
0 5 15.17
s=0.5 7 9

14 16.83
5 F
D t=2.83
9 14
s=0.5
s=0.33

23


Example: Cumulative standard deviations
E
3 t=8
B G
A t=6 s=1 t=4
11 0.75
t=5 s=0.67 6 8 s=0.33
s=0.33
15.17 0.75 23.17 1.25 10 11
1 2 C 4
t=10.17 23.17 1.25 27.17 1.29
0 5 0.33 15.17 0.6
s=0.5 7 9

14 0.75 16.83 0.9
5 F
D t=2.83
9 14 0.47
s=0.5
s=0.33

24


Evaluating schedule risks (cont d)
!   Monte Carlo simulation as an alternative
!  Calculates large number of activity completion
dates
!  Random selection of activity times from set of
estimates
!  Input depending on available information, e.g.
historic project information
!  Output can take form of graphs and summaries
!   Specialized software packages available
!  Interfaces to project planning and spreadsheet
software
!  Cost, resource, and duration estimates
25


ICT project management 'runaways’…

!   Standish "Chaos" report
!  1994:
•  16% success,
•  31% cancelled
•  53% challenged
!  2000:
•  34% successful
•  15% cancelled
•  51% challenged

26


Project Management & Success
!  Technical issues
challenged !   Hardware/software/telecommunications systems
51% don't work
!   Frequent failure/errors in operation
cancelled
15%
!  Economic issues
!   Time or budget overrun
success
!   Low/no ROI ( productivity paradox )
34%
!  Organizational (implementation)
issues
!   Resulting system fails to achieve desired benefit
!   Users reject system


Project Escalation

!   Continued commitment in the face of negative
information about prior resource allocations coupled
with uncertainty surrounding the likelihood of goal
attainment (Brockner, 1992)

Project Social
Factors Factors
Project
Escalation
Psychol. Organiz.
Factors Factors

28


Escalation factors

Project factors: Risk of escalation:
!   Objective features of !   Large potential payoff
the project !   Long-term investment
!   Perception by to reap gains
management !   Setbacks perceived as
!   Costs and benefits temporary problems
associated with the
project
!   Difficulties (risk) and
duration

29


Escalation factors (cont d)

Psychological factors: Risk of escalation:
!   „Things do not look that !   Errors in processing
bad information
!   Continuation will !  Throwing good money
after bad
eventually lead to
!  Self-justification
success
!   Project manager s
previous experience
!   Emotional attachment

30



Social factors: Risk of escalation:
!   Competitive rivalry with !   Competition between
other social groups decision-making groups
!   Needs for external !   Staying the course
justification
!   Norms for consistency

31



Organizational factors: Risk of escalation:
!   Structural environment !   Strong top management
!   Political environment, support
i.e. top management !   Institutionalization
support
!   Institutionalization with
organizational goals
and values

32


Organizational contexts of whistle blowing
Deaf effect
Weak Strong
Weak

Healthy Ostrich
Mum effect

organization organization
Strong

Cover-up Deaf-dumb-blind
organization organization

33


Organizational contexts of whistle blowing
(cont d)
!   Mum-effect (reluctance !   Deaf-effect (reluctance
to blow the whistle) to hear the whistle)
!  Risks to own career !  Organizational
!  Fear of reprisals leapfrogging as a remedy
!  Critical audit may !  Executives insulate
contradict best judgment themselves from dealing
and vested interest of with non-urgent problems
powerful people !  Disassociating from
failing endeavor

34


Implication for project management
practice
!   IT managers:
!  Traditional project management approaches build
on rational philosophy
!  Expand with behavioral and organizational
perspective
!  Recognize tendency to over-commitment
!  Alternative courses of action

35


Implication for project management
practice (cont d)
!   Organizations:
!  Match project management with development
stage
!  Continuous risk assessment
•  Probability of technical success
•  Probability of customer acceptance
!  Serious project audits, e.g. review boards with
appointed members
!  Reduce need for self-justification, e.g. by dividing
initial and subsequent decision-making
36

SDPM - Lecture 6 - Risk management and project escalation

Recommended

Recommended

More Related Content

What's hot

What's hot (13)

Viewers also liked

Viewers also liked (7)

Similar to SDPM - Lecture 6 - Risk management and project escalation

Similar to SDPM - Lecture 6 - Risk management and project escalation (20)

More from OpenLearningLab

More from OpenLearningLab (20)

Recently uploaded

Recently uploaded (20)

SDPM - Lecture 6 - Risk management and project escalation