Managing Project Risks and Opportunities 1 MGMT 412

Managing Project Risks and Opportunities 1 MGMT 412 Week 3 Chat

2 MGMT 440 Week 2 Chat

Scenario The design manager and the engineering manager were discussing with you the software tool they normally use for their design and engineering work. It is critical to their process, but there are some defects in the software that result in errors in the designs. 3 MGMT 412 Week 3 Chat

Scenario The team knows how to find the errors and correct them, but it takes additional time during the design and engineering timeline. The managers just received an e-mail from the software vendor stating that a new version of the tool will be available right as the design tasks are expected to begin. 4 MGMT 412 Week 3 Chat

Scenario Historically, the vendor is known to deliver the software about four weeks later than announced. The upgrade corrects the defects that the team knows about, as well as provides some new functionality that will make some of the engineering tasks faster. 5 MGMT 412 Week 3 Chat

Scenario The vendor is strongly encouraging training for the design and engineering teams to use this new version. As the project manager, you must decide whether or not the team will use this new version of the software. The vendor is offering a 50% discount on the training if people are signed up within the next ten days. 6 MGMT 412 Week 3 Chat

Scenario Answer the following questions: What risks does this use of technology introduce to the project? What is the impact of each risk? What is the probability of each risk? Based on your understanding of the risks, will you tell the managers whether or not they should sign up their people for training? 7 MGMT 412 Week 3 Chat

What risks does this use of technology introduce to the project? 8 MGMT 412 Week 3 Chat

Software Risks A list of potential software risks include: Database complexity Development required Management ability Software complexity Software maturity System size Telecommunication aspects 9 MGMT 412 Week 3 Chat

Suppliers & Sub-contractors Risks Ability to deliver, skills, and quality of the software Accreditation Alternative suppliers and/or sub-contractors Availability Claims and variations Commercial terms Quality of goods and services provided Reliability of supplier Safety attitude Special considerations 10 MGMT 412 Week 3 Chat

Suppliers & Sub-contractors Risks (cont. ) Control and supervision Cost of goods and services provided Delivery of goods and services provided Failure of a critical supplier and/or sub-contractor Flow-on conditions from prime contract Lead times for orders Limited number of suppliers or producers New or existing sub-contract Overseas versus local sub-contractors 11 MGMT 412 Week 3 Chat

Suppliers & Sub-contractors Risks (cont. ) Stability of joint ventures and/or partnerships Timeliness Transferability of warrantees and/or guarantees Warranty of goods and services provided 12 MGMT 412 Week 3 Chat

Technology Risks A list of technology risks include: Availability of key components Failure rates Lack of technical knowledge Maintenance Need for further development New or non-standard performance Quality requirements 13 MGMT 412 Week 3 Chat

Technology Risks (cont. ) Obsolescence Reliability, availability, maintainability Spare parts and support Specification does not reflect client needs Specification incomplete or misleading Technical standards or regulations change Technical standards or regulations unclear Technological change Technology not available 14 MGMT 412 Week 3 Chat

What is the impact of each risk? 15 MGMT 412 Week 3 Chat

Cost, Schedule, and Performance Factors Cost, schedule, and performance are what is impacted by risk. The impact probabilities include: 0. 1 = Insignificant 0. 3 = Low 0. 5 = Medium 0. 7 = Very High 0. 9 = Catastrophic 16 MGMT 412 Week 3 Chat

0. 1 = Insignificant Cost Factor Budget estimates not exceeded, some transfer of money 17 MGMT 412 Week 3 Chat Schedule Factor Performance Factor Negligible impact, slight schedule change compensated by available schedule slack Minimal or unimportant performance impacts

0. 3 = Low 18 Cost Factor Schedule Factor Project costs exceed budget by 1% to 5% Minor slip in project schedule, less than 1 month MGMT 413 Week 3 Chat Performance Factor Small reduction in performance

0. 5 = Moderate Cost Factor Project cost estimates increased by 5% to 10% 19 MGMT 412 Week 3 Chat Schedule Factor Small slip in project schedule from 1 to 3 months Performance Factor Some reduction in performance

0. 7 = Very High Cost Factor Project cost estimates increased by 10% to 20% 20 MGMT 412 Week 3 Chat Schedule Factor Project schedule slip from 3 to 6 months Performance Factor Significant reduction in performance

0. 9 = Catastrophic Cost Factor Project costs increased by more than 20% 21 MGMT 412 Week 3 Chat Schedule Factor Performance Factor Large project schedule slip, key milestones not achieved Key performance criteria cannot be achieved

Cost, Schedule, and Performance Factors For each risk you will need to determine the following: Whether it is a cost, schedule, or performance factor Whether the impact is insignificant, low, moderate, very high, or catastrophic Read the number that ranges from 0 to 1 from the appropriate table, and then use that number in the succeeding calculations 22 MGMT 412 Week 3 Chat

What is the probability of each risk? 23 MGMT 412 Week 3 Chat

Probability Factors They include: Maturity factors Complexity factors Integration, interfacing, and dependency factors Commercial risk and management process factors 24 MGMT 412 Week 3 Chat

Probability Factors Here are the actual probabilities that you will employ: 0. 1 = Rare 0. 3 = Unlikely 0. 5 = Possible 0. 7 = Likely 0. 8 = Highly likely 0. 9 = Almost certain 25 MGMT 412 Week 3 Chat

Impact & Probability Factors First, you will need to figure out which of the four (4) impact probabilities listed in the previous slides applies. Second, you will need to decide which one of the other six (6) probabilities to assign. Once you have made these two decisions, you have just about answered the question. In the last part of the question, will need to justify your selections. 26 MGMT 412 Week 3 Chat

Based on your understanding of the risks, how will you tell the managers whether or not they should sign up their people for training. 27 MGMT 412 Week 3 Chat

Risk Priority Matrix 28 MGMT 440 Week 2 Chat

Recommended Formula there are two formulas that can be used to calculate the risk factor. The recommended equation is: RF = P + C – (P*C) where P = the selected probability and C = the selected consequence or impact value. 29 MGMT 412 Week 3 Chat

Recommendation All you need to do is substitute the probability and impact factors selected into the equation on the previous slide, perform the calculation, and calculate the result. This will tell you whether or not the team members should or should not sign up for the training. 30 MGMT 412 Week 3 Chat

Example It is obvious that the impact is an interfacing factor. Suppose that you believe that it is unlikely that there will be only minor interfacing problems. Then, the probability value is 0. 3, which is read off from the first column of the Table on slide 24. 31 MGMT 412 Week 3 Chat

Example Next, you will need to decide the impact factor. Since going to training may impact the budget, create a minor slip in the schedule with possibly a small reduction in performance, the impact factor is 0. 5. The last step is to substitute these two values into the equation. 32 MGMT 412 Week 3 Chat

Example Here is the calculation: RF = P + C – (P * C) = 0. 3 + 0. 5 – (0. 3 * 0. 5) = 0. 8 – 0. 15 = 0. 65 33 MGMT 412 Week 3 Chat

Example With a 0. 65 probability of the training affecting the project schedule, you may come to the conclusion that the training is not worthwhile. This is not an unreasonable conclusion, and so you see how to address this discussion board question. 34 MGMT 412 Week 3 Chat

Caveat Please note that your selection of probabilities may be different from my selection. I encourage you to review the example carefully, specify your own values, and then reach your own conclusions. Then you will have answered the question, and understand how to deal with this elusive issue called risk. 35 MGMT 412 Week 3 Chat