Professional Documents
Culture Documents
Technology Project
Management
by Jack T. Marchewka
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Chapter 8
Managing Project Risk
Chapter 8 Objectives
Describe the project risk management planning framework
introduced in this chapter.
Define risk identification and the causes, effects, and
integrative nature of project risks.
Apply several qualitative and quantitative analysis techniques
that can be used to prioritize and analyze various project risks.
Describe the various risk strategies, such as insurance,
avoidance, or mitigation.
Describe risk monitoring and control.
Describe risk evaluation in terms of how the entire risk
management process should be evaluated in order to learn
from experience and to identify best practices.
MIS Software
Risks
Creeping
User
Requireme
nts
Excessive
Schedule
Pressure
Low
Quality
Cost
Overruns
Inadequate
Configurati
on Control
Systems
Software Risks
80
%
Long
Schedul
es
65
%
Inadequ
ate Cost
Estimat
es
70
%
Commercial
Software Risks
Inadequate
User
Documentati
on
Contract or
Outsourced
Software Risks
Military Software
Risks
70
%
Excessive
Paper Work
90
%
55
%
Low
Productivit
y
85
%
High
Maintenanc
e Costs
60
%
Nontransferab
le
Applicati
on
Friction
Between
Contractor
& Client
Personnel
50
%
Hidden
Errors
65%
45
%
Unmaintaina
ble
Software
60%
65
%
Low User
Satisfaction
60
%
Excessi
ve Paper
Work
60
%
Excessive
Time to
Market
50
%
Long
Schedules
75
%
Creeping
User
Requireme
nts
55
%
Errorprone
Module
s
50
%
Harmful
Competitive
Actions
45
%
Creeping
User
Requireme
nts
70
%
Unanticipat
ed
Acceptance
Criteria
30
%
45
%
Legal
Ownership
of Software
&
Deliverable
s
20
%
50
%
Cancell
ed
Projects
25
%
Litigation
Expense
30
%
Unused or
Unusable
software
End-User Software
Risks
Redundan
t
Applicati
on
Legal
Ownershi
p of
Software
and
Deliverab
les
80%
50%
20%
PMBOK Definitions
Risk
An uncertain event or condition that, if it occurs, has a
positive or negative effect on the project objectives.
Risk Management
The systematic process of identifying, analyzing, and
responding to project risk. It includes maximizing the
probability and consequences of positive events and
minimizing the probability and consequences of
adverse events.
Figure 8.1
Figure 8.2
Brainstorming
Nominal Group Technique
Delphi Technique
Checklists
SWOT Analysis
Cause & Effect (a.k.a. Fishbone/Ishikawa)
Past Projects
SWOT Analysis
Risk Assessment
Focuses on prioritizing risks so that an effective
strategy can be formulated for those risks that
require a response.
Depends on Stakeholder risk tolerances
You cant respond to all risks!
Expected Value
Payoff Table
Decision Trees
Risk Impact Table
Tuslers risk classification scheme
Quantitative Approaches
Probability Distributions
Discrete
Binomial
Continuous
Normal
PERT
Triangular
Simulations
A
Probability
B
Payoff (in 000s)
A+B
Prob. * Payoff
Project completed
20 days early
5%
$200
$10
Project completed
10 days early
20%
$150
$30
Project completed
on schedule
50%
$100
$50
Project completed
10 days late
20%
$ --
$ --
Project completed
20 days late
5%
$ (50)
$ (3)
100%
$88
Expected Value
Figure 8.5
Figure 8.6
Normal Distribution
Shape is determined by its mean () and standard
deviation ()
Probability is associated with area under the curve.
Since the distribution is symmetrical, the following
probability rules of thumb apply
About 68 percent of all the values will fall between +1
of the mean
About 95 percent of all the values will fall between +2
of the mean
About 99 percent of all the values will fall between +3
of the mean
Normal Distribution
PERT Distribution
PERT distribution uses a three-point
estimate where:
a denotes an optimistic estimate
b denotes a most likely estimate
c denotes a pessimistic estimate
PERT Mean = (a + 4m + b) / 6
PERT Standard Deviation = (b - a) / 6
PERT Distribution
Triangular Distribution
uses a three-point estimate similar to the PERT
distribution where:
a denotes an optimistic estimate
b denotes a most likely estimate
c denotes a pessimistic estimate
Triangular Distribution
Simulations
Monte Carlo
a technique that randomly generates specific
values for a variable with a specific probability
distribution.
goes through a specific number of iterations
or trials and records the outcome.
@risk
Sensitivity Analysis
Tornado Graph
Figure 8.12
Cumulative Probability
Distribution
Figure 813
Figure 8.14
Risk Strategies
Depends On:
The nature of the risk itself
Really a threat or an opportunity?
Figure 8.15
Figure 8.16