Software Project Management

By
Tanveer Khan
 Understand what risk is and the importance of
good project risk management

 Discuss the elements involved in risk

management planning and the contents of a risk
management plan

 List common sources of risks in information

technology projects

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 Describe the process of identifying risks and be
able to create a risk register

 Discuss the qualitative risk analysis process and

explain how to calculate risk factors, create
probability/impact matrixes, and apply the Top Ten
Risk Item Tracking technique to rank risks

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 Explain the quantitative risk analysis process and
how to apply decision trees, simulation, and
sensitivity analysis to quantify risks
 Provide examples of using different risk response
planning strategies to address both negative and
positive risks
 Discuss what is involved in monitoring and
controlling risks
 Describe how software can assist in project risk
management

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 Project risk management is the art and science of
identifying, analyzing, and responding to risk
throughout the life of a project and in the best
interests of meeting project objectives

 Risk management is often overlooked in projects,

but it can help improve project success by helping
select good projects, determining project scope,
and developing realistic estimates

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 A dictionary definition of risk is “the possibility of
loss or injury”

 Negative risk involves understanding potential

problems that might occur in the project and how
they might impede project success

 Negative risk management is like a form of

insurance; it is an investment

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 Positive risks are risks that result in good things
happening; sometimes called opportunities

 A general definition of project risk is an

uncertainty that can have a negative or positive
effect on meeting project objectives

 The goal of project risk management is to

minimize potential negative risks while maximizing
potential positive risks

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 Risk utility or risk tolerance is the amount of
satisfaction or pleasure received from a potential
payoff.
 The project may be accepted if the risks are within
tolerances and are in balance with the rewards
that may be gained by taking the risks.
 Some organizations or people have a neutral
tolerance for risk, some have an aversion to risk,
and others are risk-seeking.
 These three preferences are part of the utility
theory of risk

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 ◦ There are three types of risk preferences:
1. Risk-Averse:
Utility rises at a decreasing rate for a risk-averse person. In
other words, when more payoff or money is at stake, a
person or organization that is risk-averse gains less
satisfaction from the risk, or has lower tolerance for the risk.
2. Risk-Seeking:
 Those who are risk-seeking have a higher tolerance for
risk, and their satisfaction increases when more payoff is at
stake.
 A risk-seeking person prefers outcomes that are more
uncertain and is often willing to pay a penalty to take risks.

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 3. Risk-Neutral
 A risk-neutral person achieves a balance between risk and
payoff.
For example:
 A risk-averse organization might not purchase hardware
from a vendor who has not been in business for a specified
period of time.

 A risk-seeking organization might deliberately choose

start-up vendors for hardware purchases to gain new
products with unusual features that provide an advantage.

 A risk-neutral organization might perform a series of

analyses to evaluate possible purchase decisions. This
type of organization evaluates decisions using a number of
factors—risk is just one of them.

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 Figure 11-2 shows the basic difference between
risk-averse, risk-neutral, and risk-seeking
preferences.
 The y-axis represents utility, or the amount of
pleasure received from taking a risk.
 The x-axis shows the amount of potential payoff or
dollar value of the opportunity.

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 Planning risk management: deciding how to
approach and plan the risk management activities for
the project

 Identifying risks: determining which risks are likely

to affect a project and documenting the
characteristics of each

 Performing qualitative risk analysis: prioritizing

risks based on their probability and impact of
occurrence

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 Performing quantitative risk analysis:
numerically estimating the effects of risks on project
objectives
 Planning risk responses: taking steps to enhance
opportunities and reduce threats to meet project
objectives
 Monitoring and controlling risks: monitoring
identified and residual risks, identifying new risks,
carrying out risk response plans, and evaluating the
effectiveness of risk strategies throughout the life of
the project

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 The main output of risk management planning is a
risk management plan, a plan that documents
the procedures for managing risk throughout a
project

 The project team should review project documents

and understand the organization’s and the
sponsor’s approaches to risk

 The level of detail will vary with the needs of the

project

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  Methodology: How will risk management be performed on this
project? What tools and data sources are available and
applicable?
 Roles and Responsibilities: Who are the individuals responsible
for implementing specific tasks and providing deliverables related
to risk management?
 Budget and Schedule: What are the estimated costs and
schedules for performing risk-related activities?
 Risk Categories: What are the main categories of risks that
should be addressed on this project? Is there a risk breakdown
structure for the project?
 Risk Probability and Impact: How will the probabilities and
impacts of risk items be assessed? What scoring and
interpretation methods will be used for the qualitative and
quantitative analysis of risks?
 Risk Documentation: What reporting formats and processes will
be used for risk management activities?
Chapter 11 – Project Risk Management 17
 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 and are put
into effect if attempts to reduce the risk are not
effective
 Contingency reserves or allowances are provisions
held by the project sponsor or organization to reduce
the risk of cost or schedule overruns to an acceptable
level

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  Many organizations develop their own risk questionnaires.
Some of the categories of risk might include:
◦ Market risk – Will the new service or product be useful to the
organization or marketable to others? Will the users accept it?
Will someone else create a better product?
◦ Financial risk – can the organization afford to undertake the
project? Will the project meet NPV, ROI and payback estimates?
◦ Technology risk – is the project technically feasible? Is it
leading edge or bleeding edge technology?
◦ People risk – Are people with appropriate skills available to help
complete the project? Does senior management support the
project?
◦ Structure/process risk – What is the degree of change the new
project will introduce into user areas and business procedures?
With how many other systems does a new project/system need
to interact?
Chapter 11 – Project Risk Management 19
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 Identifying risks is the process of understanding
what potential events might hurt or enhance a
particular project
 Risk identification tools and techniques include:
◦ Brainstorming
◦ The Delphi Technique
◦ Interviewing
◦ SWOT analysis

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 Brainstorming is a technique by which a group
attempts to generate ideas or find a solution for a
specific problem by gathering ideas spontaneously
and without judgment
 An experienced facilitator should run the
brainstorming session
 Be careful not to overuse or misuse brainstorming
◦ Psychology literature shows that individuals produce a
greater number of ideas working alone than they do
through brainstorming in small, face-to-face groups
◦ Group effects often inhibit idea generation

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 The Delphi Technique is used to derive a
agreement among a panel of experts who make
predictions about future developments

 Provides independent and anonymous input

regarding future events

 Uses repeated rounds of questioning and written

responses and avoids the biasing effects possible
in oral methods, such as brainstorming

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 Interviewing is a fact-finding technique for
collecting information in face-to-face, phone, e-
mail, or instant-messaging discussions

 Interviewing people with similar project experience

is an important tool for identifying potential risks

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 SWOT analysis (strengths, weaknesses,
opportunities, and threats) can also be used
during risk identification

 Helps identify the broad negative and positive

risks that apply to a project

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 The main output of the risk identification process is a list
of identified risks and other information needed to begin
creating a risk register
 A risk register is:
◦ A document that contains the results of various risk
management processes and that is often displayed in a
table or spreadsheet format
◦ A tool for documenting potential risk events and related
information
 Risk events refer to specific, uncertain events that may
occur to the detriment or enhancement of the project

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 An identification number for each risk event
 A rank for each risk event
 The name of each risk event
 A description of each risk event
 The category under which each risk event falls
 The root cause of each risk

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 Triggers for each risk; triggers are indicators or
symptoms of actual risk events
 Potential responses to each risk
 The risk owner or person who will own or take
responsibility for each risk
 The probability and impact of each risk occurring
 The status of each risk

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Information Technology Project Management, Sixth Edition
 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 Ten Risk Item Tracking
◦ Expert judgment

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 A probability/impact matrix or chart lists the
relative probability of a risk occurring on one side of
a matrix or axis on a chart and the relative impact of
the risk occurring on the other
 List the risks and then label each one as high,
medium, or low in terms of its probability of
occurrence and its impact if it did occur
 Can also calculate risk factors
◦ Numbers that represent the overall risk of specific events
based on their probability of occurring and the
consequences to the project if they do occur

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 Top Ten Risk Item Tracking is a qualitative risk
analysis tool that helps to identify risks and
maintain an awareness of risks throughout the life
of a project
 Establish a periodic review of the top ten 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

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 A watch list is a list of risks that are low priority
but are still identified as potential risks

 Qualitative analysis can also identify risks that

should be evaluated on a quantitative basis

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 Often follows qualitative risk analysis, but both can
be done together
 Large, complex projects involving leading edge
technologies often require extensive quantitative
risk analysis
 Main techniques include:
◦ Decision tree analysis
◦ Simulation
◦ Sensitivity analysis

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 A decision tree is a diagramming analysis
technique used to help select the best course of
action in situations in which future outcomes are
uncertain
 Estimated monetary value (EMV) is the product of
a risk event probability and the risk event’s
monetary value
 You can draw a decision tree to help find the EMV

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 After identifying and quantifying risks, you must
decide how to respond to them

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 Four main response strategies for negative risks
◦ Risk avoidance
◦ Risk acceptance
◦ Risk transference
◦ Risk mitigation

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RISK AVOIDANCE
 Risk avoidance or eliminating a specific threat, usually
by eliminating its causes.

 Of course, not all risks can be eliminated, but specific

risk events can be.

 For example, a project team may decide to continue

using a specific piece of hardware or software on a
project because the team knows it works. Other
products that could be used on the project may be
available, but if the project team is unfamiliar with them,
they could cause significant risk. Using familiar
hardware or software eliminates this risk.

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RISK ACCEPTANCE
 Risk acceptance or accepting the consequences if a risk
occurs.

 For example, a project team planning a big project

review meeting could take an active approach to risk by
having a contingency or backup plan and contingency
reserves if the team cannot get approval for a specific
meeting site.

 On the other hand, the team could take a passive

approach and accept whatever facility the organization
provides.

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RISK TRANSFERENCE
 Risk transference or shifting the consequence of a risk
and responsibility for its management to a third party.

 For example, risk transference is often used in dealing

with financial risk exposure. A project team may
purchase special insurance or warranty protection for
specific hardware needed for a project. If the hardware
fails, the insurer must replace it within a specified period
of time.

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RISK MITIGATION
 Risk mitigation or reducing the impact of a risk event by
reducing the probability of its occurrence.

 For example, risk mitigation include using proven

technology, having competent project personnel, using
various analysis and validation techniques, and buying
maintenance or service agreements from
subcontractors.

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 Risk exploitation
 Risk sharing
 Risk enhancement
 Risk acceptance

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RISK EXPLOITATION
 Risk exploitation or doing whatever you can to make
sure the positive risk happens.

 For example, suppose that Cliff’s company funded a

project to provide new computer classrooms for a
nearby school in need. They might select one of their
top project managers to organize news coverage of the
project, write a press release, or hold some other public
event to ensure that the project produces good public
relations for the company, which could lead to more
business.

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RISK SHARING
 Risk sharing or allocating ownership of the risk to
another party.

 For example, using the same example of implementing

new computer classrooms, the project manager could
form a partnership with the school’s principal, school
board, or parent-teacher organization to share
responsibility for achieving good public relations for the
project.

 On the other hand, the company might partner with a

local training firm that agrees to provide free training for
all of the teachers on how to use the new computer
classrooms.
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RISK ENHANCEMENT
 Risk enhancement or changing the size of the
opportunity by identifying and maximizing key drivers of
the positive risk.

 For example, an important driver of getting good public

relations for the computer classrooms project might be
to generate awareness and excitement about it among
students, parents, and teachers.

 These groups might then do their own formal or informal

advertising of the project and Cliff’s company, which in
turn might interest other groups and generate more
business.

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RISK ACCEPTANCE
 Risk acceptance also applies to positive risks when the
project team does not take any actions toward a risk.

 For example, the computer classrooms project manager

might assume that the project will result in good public
relations for the company and not feel compelled to do
anything extra.

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 It’s also important to identify residual and
secondary risks.
 Residual risks are risks that remain after all of
the response strategies have been implemented.
 For example, even though a stable hardware
product may have been used on a project, there
may still be a risk that it fails to function properly.
 Secondary risks are a direct result of
implementing a risk response.
 For example, using the more stable hardware
may have caused a risk of peripheral devices
failing to function properly.
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 Involves executing the risk management process to
respond to risk events
 Workarounds are unplanned responses to risk
events that must be done when there are no
contingency plans
 Main outputs of risk monitoring and control are:
◦ Risk register updates
◦ Organizational process assets updates
◦ Change requests
◦ Updates to the project management plan and other
project documents

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 Risk registers can be created in a simple Word or
Excel file or as part of a database
 You can purchase add-ons for Excel and Project
2007 to perform simulations

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 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

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 Project risk management is the art and science of
identifying, analyzing, and responding to risk
throughout the life of a project and in the best
interests of meeting project objectives
 Main processes include:
◦ Plan risk management
◦ Identify risks
◦ Perform qualitative risk analysis
◦ Perform quantitative risk analysis
◦ Plan risk responses
◦ Monitor and control risks

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