Table Risk Analysis Example

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Condition: The state agency requires that all diagrams be developed using a software tool that our technical writers have not used before.

Consequence: All diagram generation and document management tasks will take longer. Limitations of the tool will cause rework.

On average, the slower work and the rework will add up to 25% more effort on documentation tasks. Probable labor cost: 1.25 x 20 = 25 Probable schedule: 1.25 x 4 months = 5 months

Send all the technical writers to a 2-day course on the new tool. The training cost is $2,200. This will reduce the productivity factor to 1.1.

Make one of the technical writers the tool expert. It will be his or her job to spend an average of 1 day each week to exercise the tool to find its limitations and to create standards and templates to build on its strengths. This will bring the productivity factor down to 1.0.

The tool expert will spend 5 labor days to create document management strategies that ensure a smooth production process and eliminate rework.

» The probability is a subjective estimate based on the average normal productivity of a junior technical writer versus a senior technical writer. Since all writers will be new to the tool, all are assigned the junior productivity factor. » The normal cost for the required documentation is 20 labor months and the normal duration is 4 months.

» The strategy is to shorten the learning curve. It will cost 2 days of training (duration) and the time spent by the tool expert on experimentation adds a cost of 21 days (1 day a week for four months plus 5 days). So the new tool's duration consequence is cut to 5 days and the cost consequence is 21 days labor plus the cost of training. » The strategy is shown in the project plan, which shows the cost and duration of training and who will attend. Tasks are added for experimenting with the tool and developing tool standards. These additional tasks result in increased labor costs.

tools at their disposal, assigning probabilities to a risk remains as much an art as a science. The sheer number of possible problems, including those that are intangible and impossible to quantify, requires that a project manager use creativity and intuition as well as knowledge and experience in assessing risks.

There is a temptation to flee from the hard work of developing a probability estimate for each risk. Oftentimes the hard data that makes statistical analysis possible just doesn't exist. Why worry about the infinite number of possible problems your project could encounter? That is exactly the point: Because there are an infinite number of possible risks to your project, it is necessary to quantify the known risks in order to prioritize them and establish a budget for managing them.

Assigning a probability to the risk helps to assess the consequences of the risk. If you multiply the probability of a risk by the negative consequences, you will begin to see how bad the risk really is. This is often referred to as the expected value of the risk:

Probability x Impact = Expected Value

The example in Table 5.2 defines probability in terms of percentages to predict the probable cost of the damages. That means the expected value of the risk is $55,000. Understanding the expected value will influence the amount spent reducing the risk.

Even when there is absolutely no hard data available about a risk, the project manager can distill the intuition of the team to provide useful assessments of probability and impact. A common method (illustrated in Figure 5.3) is to use a consistent probability and impact matrix throughout the project. It uses subjective assessments to place risks in one of nine quadrants. Key components of using this subjective assessment are:

• The same matrix must be used throughout the project since the method relies on subjective judgment. This allows team members to adjust their thinking to a consistent reference point.

• It is okay to make a larger matrix. Again, make sure the same matrix is used throughout the project.

Team members can assign a ranking of 1, 3, or 5 to both probability and negative impact. Any risk whose total score is 5 or above should be analyzed further.

FIGURE 5.3 Assign probability and impact to known risks.

5

15

25

3

9

15

1

3

• Continue to use objective data to quantify both probability and impact whenever possible, then place that risk in one of the quadrants. Using objective data for reference points makes the subjective judgments more consistent.

• Have a diverse group of project stakeholders assess the risks then merge their assessments. If only the project manager is rating probability and impact, the ratings will be skewed by his or her unique perspective and risk tolerance.

Some risks have less to do with a specific event and more to do with the project's environment and its effect on productivity. For instance, the entire risk profile developed by the Software Engineering Institute addresses environmental risk factors such as the possible changes in requirements for a project, how skilled the project team may be, and the diversity of the user community.3

Assigning a probability to risks from the project's environment relies on intuition and experience. You need to ask the right questions: How good are the team's skills, and how much faster or slower will this make them? How strong is the business case for the project, and how many major changes in requirements will happen? Because these factors are intangible, they are hard to assess, but if risk management is practiced systematically on all projects, at least there will be a record of how skillfully a manager used his or her intuition. This feedback will aid in making future risk assignments more accurate.

Finally, realize that assigning probabilities to risks is done for a very practical reason: You need to be sure that the size of the solution matches the size of the problem. The combination of subjective and objective assessments of known risks enables the team to rank the risks. The risks at the top will receive attention first, and the risks at the bottom of the list will be addressed later.

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Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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