Risk Management Introduction

1. SPM-UNIT III
RISK MANAGEMENT
Prof. Kanchana Devi

2. Introduction
 An uncertain event or condition that, if it
occurs, has a positive or negative effect on a
project’s objectives.
 PRINCE2:
 The Chance of exposure to the adverse
consequences of future events
2
Prof. Kanchana Devi
PRINCE PRojects IN Controlled Environment

3. The key elements of risk
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 It relates to future
 Cost underestimation, New Technology difficult to
work.
 It involves cause and effect
 Cost Over-run, Use of untrained staff, Poor
Specification

4. Socio-technical Model of Risk
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 Kalle Lyytinen and his Colleagues proposed a
diagrammatic representation
Actors
TechnologyStructure
Tasks

5. Risk Framework
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 Actors : refers to all the people involved in the
development of the application in the question
 Risk: High staff turn-over
 Technology: encompasses both the
technology used to implement the application
and that embedded in the delivered products
 Risk: Appropriateness of the technologies and
possible faults within them

6. ……
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 Structure: Describes the management
structures and systems including those
affecting planning and control.
 Risk: Some implementation might need user
participation in some tasks(not allotted)
 Tasks: relates to the work planned
 Risk: Complexity of work might lead to delay

7. A framework for dealing with Risk
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 Planning for risk includes
 Risk Identification
 Risk Analysis and Prioritization
 Risk Planning
 Risk Monitoring

8. Risk Identification
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 There are two main approaches:
 Checklists
 Brain-stroming

9. Checklists
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 Checklists are simply lists of the risks that
have been found to occur regularly in software
development projects.
Risk Risk Reduction Techniques
Personnel shortfalls Staffing with top talent, job matching,
team building, training and career
development…
Unrealistic time and Cost Estimates Multiple Estimation techniques, Design to
cost, Incremental development…
Developing the wrong software
functions
Improved software evaluation, Formal
Specification Methods…
Developing the wrong user interface Prototyping, Task Analysis, User
Involvement.
Gold Plating Requirements Scrubbing, Prototyping,
Cost-benefit analysis…

10. Brainstorming
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 Stakeholders are brought together, preliminary
and plans are drafted
 Identifying the solution using the individual
knowledge.

11. Risk Assessment
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 A common problem in risk identification is that
a list of risks is potentially endless.
 Estimating the risk exposure for each risk
using the formula:
Risk Exposure = (Potential Damage)* (Probability of Occurrence)

12. Example: Problem
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 A project depended on a data centre
vulnerable to fire. It might be estimated that if a
fire occurred a new computer configuration
could be established for $500,000. It might
also be estimated that a computer is located
there is a 1 in 1000 chance of a fire actually
happening, that is a probability of 0.001.

13. Solution:
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 By using the formula:
 Risk Exposure= $500,000*0.001
= $500
Risk Exposure = (Potential Damage)* (Probability of Occurrence)

14. Risk Exposure Assessment
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Ref Hazard Likelihood Impact Risk
R1 Changes to Requirement Specification
during coding
8 8 64
R2 Specification Task longer than expected 3 7 21
R3 Significant staff sickness affecting
critical path activities
5 7 35
R4 Significant staff sickness affecting non-
critical path activities
10 3 30
R5 Module coding takes longer than
expected
4 5 20
R6 Module testing demonstrates errors or
deficiencies in design
4 8 32
H
S
M
S
H
S

15. Risk Probability and Associated
range values
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Probability Level Range
High Greater than 50% Chance of happening
Significant 30-50% Chance of happening
Moderate 10-29% Chance of happening
Low Less than 10% Chance of happening
Impact on Cost and Associated range
values
Probability Level Range
High More than 30% above Budgeted Expenditure
Significant 20 to 29% above Budgeted Expenditure
Moderate 10 to 19% above Budgeted Expenditure
Low Within 10% of Budgeted Expenditure

16. Impact Matrix
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R6 R1
R2,R3,R5
R4
High
Significant
Moderate
Low
Low Moderate Significant High
Probability
Tolerance Line

17. Risk Planning
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 After identifying the risks and priorities
 Task is to deal with them
 Risk Acceptance
 Risk Avoidance
 Risk Reduction & Mitigation
 Risk Transfer

18. Risk Management
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 Eg: Staff absence through illness.
 “Contingency Plan”

19. Risk Reduction Actions
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 The risk reduction action can be assessed by
calculating the “Risk Reduction Leverage”(RRL)
 RE  Risk Exposure
 If RRL = 1.00 indicates the reduction in the
exposure is greater than its cost
RRL= (RE before-RE after)/(Cost of risk reduction)

20. Example:
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 An unrealistic example, it might cost $200,000
to replace a hardware configuration used to
develop a software application. There is a 1%
chance of fire. The risk exposure would be 1%
of $200000, that is $2000. Installing fire alarms
at a cost of $500 would reduce the chance of
fire to 0.5%. The new risk exposure would be
$1000, a reduction of $1000 on previous
exposure. Calculate the RRL.

21. Solution:
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 RRL = (2000-1000)/500
= 2.0
=>So the action taken is worthwhile.

22. Risk Register
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Risk Record
Risk Description
Impact Description
Recommended Risk Mitigation
Probability/ Impact Values
Incident/Action History
Risk Id Risk Title
Owner Date Raised Status
Probability Impact
Cost Duration Quality
Pre-mitigation
Post-mitigation
Date Incident/Action Actor Outcome/Comment