Developing a Range of Values

So what are we to do? I would not for a moment suggest abandoning the effort to quantify the value of proposed projects. But we do have to look at this data as a function of the surrounding environment. We have to recognize that uncertainty exists. We have to evaluate the source and degree of uncertainty. We have to attempt to reduce uncertainty and contain the effects of risk events. We have to look at the data as a range of values rather than a single precise value.

Throughout this book, there are references to viewing a project portfolio as we would an investment portfolio. In the world of investments, we acknowledge that there are risks. We usually choose investments with some recognition of the events that can affect the results and what the acceptable range of results is. Many business decisions require the preparation of a business case. Each case will contain three scenarios: a most likely, a best case (potential upside), and a worst case (potential downside). A wise decision is based on considering all three scenarios. The proposal may be rejected if the potential downside has more than a remote probability and the worst-case results would make the business opportunity too unattractive.

We need to apply a similar approach to proposed projects—for instance:

1. Conduct a formal risk evaluation of the project and all of its segments.

2. Identify potential risk events.

3. Weigh the probability of the risk event occurrence.

4. Estimate the impact of the risk event, should it occur.

5. Identify possible ways to reduce risk (mitigation).

6. Calculate the cost of mitigation actions and the effect of these actions on the risk impact.

7. Incorporate the variables into the project valuation.

8. Extend the valuation to a range of expected results.

9. Consider each of the scenarios.

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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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