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Evaluating Risk in IT Resource & Budget Estimates
- 1. Budgets & Risk How to Estimate with Risk Factors in Mind July 19, 2018 Brian Lynch https://www.linkedin.com/in/brian-lynch-product-manager/ 1
- 2. Separating Risk Types Define Scope Determine Solutions Estimate Resources & Timing Set Budget Project Development 2
- 4. Embracing Risk Estimates are a trust exercise. 4
- 5. Contingency Budgets Dealing with unexpected costs. ● Standard Amount: Flat % of Overall Cost ● Risk Management: Calculating Probability by Cost of Impact ● Parameters: Standardized Estimates ● Reference Class Forecasting: Contingency Based on Overages from Similar Projects 5
- 6. Risk Factors: Where Errors Happen Estimation Risk Factor Assessment 6
- 7. Risk Factors: Where Errors Happen Estimation Risk Factor Assessment Increased estimate fidelity 7
- 8. Risk Factors: Where Errors Happen Estimation Risk Factor Assessment Increased estimate fidelity More appropriate contingency levels 8
- 9. Separating Risk Types Define Scope Determine Solutions Estimate Resources & Timing Set Budget Project Development 9
- 10. Separating Risk Types Define Scope Determine Solutions Estimate Resources & Timing Set Budget Project Development ● Missed or Poorly Defined Use Cases (i.e., ‘What’ & ‘Who For’) ● Scope Creep ● “Gold Plating” 10
- 11. Separating Risk Types Poor Scope Definition Scope Creep “Gold Plating” Scope Errors 11
- 12. Separating Risk Types Poor Scope Definition ● Robust Discovery ● Adequate Documentation Scope Creep “Gold Plating” Scope Errors 12
- 13. Separating Risk Types Poor Scope Definition ● Robust Discovery ● Adequate Documentation Scope Creep ● Strong Project Governance (Internal to External) ● Solid Change Management Processes “Gold Plating” Scope Errors 13
- 14. Separating Risk Types Poor Scope Definition ● Robust Discovery ● Adequate Documentation Scope Creep ● Strong Project Governance (Internal to External) ● Strict Change Management Processes “Gold Plating” ● Strong Project Governance (Internal to Internal) Scope Errors 14
- 15. Separating Risk Types Define Scope Determine Solutions Estimate Resources & Timing Set Budget Project Development 15
- 16. Separating Risk Types Define Scope Determine Solutions Estimate Resources & Timing Set Budget Project Development 16
- 17. So Where Do Errors Happen? Budgets require solution, resourcing and timing choices & estimates. These are (usually) made in collaboration with a manager’s colleagues. 17
- 18. So Where Do Errors Happen? And sometimes, these decisions are difficult. 18
- 19. Identifying Estimation Risks Define Scope Determine Solutions Estimate Resources & Timing Set Budget Project Development ● Incorrect Solution Choices ● Incorrect Solution Assumptions ● Inadequate or Incorrect Requirements ● Missed Dependencies (System Interactions) ● Missed Compliancies 19
- 20. Mitigating Estimation Risks Incorrect Solution Choices Incorrect Solution Assumptions Inadequate or Incorrect Requirements Missed Dependencies (System Interactions) Missed Compliancies ‘Estimation’ Errors 20
- 21. Mitigating Estimation Risks Incorrect Solution Choices Besides “Best Efforts”, there is no blanket mitigation Incorrect Solution Assumptions Inadequate or Incorrect Requirements Missed Dependencies (System Interactions) Missed Compliancies ‘Estimation’ Errors 21
- 22. Mitigating Estimation Risks Incorrect Solution Choices Besides “Best Efforts”, there is no blanket mitigation Incorrect Solution Assumptions Inadequate or Incorrect Requirements Missed Dependencies (System Interactions) Missed Compliancies ‘Estimation’ Errors 22
- 24. Estimation Risk Factors 3 Underlying Error Factors ● Complexity 24
- 25. Estimation Risk Factors 3 Underlying Error Factors ● Complexity ● Magnitude 25
- 26. Estimation Risk Factors 3 Underlying Error Factors ● Complexity ● Magnitude ● Novelty 26
- 27. Underlying Error Factors ● Complexity ● Magnitude ● Novelty ● Incorrect Solution Choices ● Missed Compliancies ● Missed Dependencies (System Interactions) ● Inadequate or Incorrect Requirements ● Incorrect Solution Assumptions 27
- 28. Risk Scale Lesser Novelty Greater Novelty Decreasing Complexity x Magnitude Increasing Complexity x Magnitude Lower Risk Higher Risk 28
- 29. Risk Scale Lesser Novelty Greater Novelty Decreasing Complexity x Magnitude Increasing Complexity x Magnitude Zero 10 29
- 32. Evaluating Risk Sources ● Incorrect Solution Choices ● Incorrect Solution Assumptions ● Inadequate or Incorrect Requirements ● Missed Dependencies (System Interactions) ● Missed Compliancies Possible ‘Estimation’ Errors 32
- 33. Evaluating Risk Sources Meant to Capture Complexity, Magnitude & Novelty 33
- 34. Evaluating Risk Sources - None 34
- 35. Evaluating Risk Sources - None 35
- 36. Evaluating Risk Sources - None 36
- 37. Evaluating Risk Sources - None 37
- 38. Evaluating Risk Sources - None 38
- 39. Evaluating Risk Sources - None 39
- 41. How to Embrace Risk and Budget Better And then what…? ● Use to as basis to calculate probability/impact as part of contingency calculation. ● Use to determine contingency amount based on standard scale of Risk Score to $. ● Use as a ‘multiplier’ for the resource amounts (i.e., ‘hard bake’ contingency into each resource estimate). ● Develop mitigation/avoidance strategies for any components with Risk Score above certain amount. Applying the Risk Score 41
- 42. How to Embrace Risk and Budget Better This process is as much about avoiding the need for contingency as calculating it. 42
- 43. How to Embrace Risk and Budget Better Thank You! 43
Editor's Notes
- The usual process that might include Discovery, on the road to a prelim budget (e.g., for an SOW or resource estimates)
- Story about generating Padworx project budgets for app development: Tod Factor
- Trusting that those giving the estimates are accurate, and that the estimate itself won’t be derailed by something. This is why we have contingency
- The classic ways of determining contingency in budgeting
- What if we were to evaluate the underlying risk factors of specific projects, and calculate contingency based on those.
- What if the estimation process itself provided inherently more accurate estimates?
- And if that process allowed us to calculate more appropriate contingency levels (without having to calculate probability and impact)
- Here is that project dev process again
- First off, contingency is not about covering errors in the development or management of Scope. But let’s take a quick review of how those issues are handled by best practice
- While ‘Scope’ issues are risks that creep in on a project from the outside, Estimate and Solution Choice issues are ‘Embedded or Specific Risks’
- Who has ever faced these kind of issues? Unfortunately, they often fall on the team delivering the product, since they exist within the agreed scope (hence the need for contingency)
- Well, is there a set of mitigations we can apply (like we did for scope creation and management?)
- Not really. Because you can’t manage yourself out of an estimation or solutioning error.
- These are ‘foundational’ errors that no one intended and the best mitigation is to avoid them in the first place and/or provide contingency that will allow you to address them.
- The good news is that there are 3 common underlying factors for most of these issues.
- Any one of these factors can cause any one of the example issues
- AND, these 3 factors can be viewed on a matrix that depicts low to high risk in any project
- That can actually be quantified (though not as an actual measurement)
- So, an example project