sdpm - lecture 6 - risk management and project escalation

Leiden Institute of Advanced Computer Science

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System’s Development and Project Management – Risk management and project escalation

Prof. Dr. Thomas Bäck

Leiden Institute of Advanced Computer Science Dates

Feb. 1 14:45 – 17:30 Introduction, Project Description Feb. 2 13:45 – 16:30 STEP WISE Approach to Project Planning Feb. 9 13:10 – 15:45 STEP WISE Approach to Project Planning,

SAVE ENERGY Case Feb. 15 14:45 – 17:30 Selecting an Appropriate Software Dev.

Approach Feb. 16 15:15 – 18:00 Activity Planning and Resource Allocation Feb. 22 14:45 – 17:30 Software Effort Estimation Feb. 23 13:15 – 15:45 Risk management, project escalation Mar. 1 14:45 – 17:00 Exam Mar. 2 13:45 – 16:30 Risk Management, Project monitoring and

control Mar. 8 14:45 – 17:30 Software Quality Assurance Mar. 9 13:45 – 16:30 Managing People; Contract Management Mar. 18 15:00 – 17:00 Trade Fair

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Deliverable Planning

February 18, midnight Assignment 1: Project proposal (‘bid’)

February 25, midnight Assignment 2: Project Plan including functional specification

March 7, midnight Assignment 3: Deutsche Bank case, 5 ppt slides

March 1 (14:45 – 17:00) Exam

March 18 (15:00 – 17:00) (setup from 14:00)

Trade fair, Plantsoen 97, Leiden

March 18, midnight Assignment 4: Personal ref lect ion paper on project management


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STEP WISE overview

1. Identify project objectives 0. Select Project 2. Identify project infrastructure

3. Analyze pr. characteristics

4. Identify products and activities

5. Estimate effort for activity

6. Identify activity risks

7. Allocate resources

8. Review / publicize plan 9. Execute plan

10. Lower level planning

For each activity

Review lower level detail


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Evaluation

!  Not unusual to spend between 6-12 months and 40% of total acquisition and implementation cost on package evaluation with major customers.

!  Make or buy? !   Buying is attractive when money available but

other resources are short. !   Hazards, because staff time and attention is

needed to manage such projects successfully.


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Nature of risk

!  Describes non-desirable events or outcomes (vs. opportunities)

!  Risk management concerned with: !   Events or hazards !   Outcomes or problems !   Action plans

!   Includes assessment of likelihoods, seriousness, costs and effectiveness of action


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Types of risk

!  Caused by estimation difficulties !   Some tasks are more difficult to estimate

!  Caused by assumptions made during planning process !   Important to continuously list all assumptions and

their likely effects !  Eventualities: Unforeseen hazards occurring

!   Reduction through sound planning


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Managing risk

Risk analysis Risk management

Risk evaluation Risk estimation Risk identification

Risk monitoring Risk control Risk planning Risk directing

Boehm’s risk engineering task breakdown

Risk staffing

Risk engineering


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Managing risk (cont‘d)

!  Risk analysis: !   Risk identification - listing all hazards which could

affect project !   Risk estimation - likelihood and severeness of

hazards !   Risk evaluation - ranking and determination of risk

aversion strategies


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Managing risk (cont‘d)

!  Risk management: !   Risk planning – drawing up contingency plans !   Risk control – quality control and dealing with

emergent problems !   Risk monitoring – an ongoing activity !   Risk directing !   Risk staffing

Day-to-day risk management


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Hazard identification

!   Application factors !   Staff factors !   Project factors !   Project methods !   Hardware/software

factors !   Changeover factors !   Supplier factors !   Environment factors !   Health and safety

factors

Factors should be considered for each activity individually, involving the whole project team


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Hazard analysis

!  Most favored ranking method is to calculate risk exposure !   Risk exposure RE = risk likelihood * risk impact

!  Alternative - scoring methods: !   Likelihood !   Impact !   Timeframe


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Hazard analysis (cont‘d)

!  Risk prioritization !   Reducing risk exposure by decreasing likelihood

and/or impact !   Contingency plans

!  Risk reduction leverage (RRL) !   RRL=(REbefore-REafter)/risk reduction cost !   Monetary values recommended !   RRL > 1: We can gain from implementing the risk

reduction plan


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Risk planning and control

!  Hazard prevention !  Likelihood reduction !  Risk avoidance !  Risk transfer !  Contingency planning


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Evaluating schedule risks

!   In contrast to CPM, PERT requires three estimates: !   Most likely time (m) !   Optimistic time (a) !   Pessimistic time (b)

!  Activity-on-arrow diagram !   te=(a+4m+b)/6, s=(b-a)/6, z=(T- te)/s !  Expected duration te, s-dev s., no. of s-dev.s

between target and expected date z


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Event number Target date

Expected date Standard deviation

Notation


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Evaluating schedule risks (cont’d)

1.  Use expected durations for forward pass 2.  Calculate standard deviations for each

project event (add squares and find square root of sum)

3.  Calculate z-values - number of standard deviations between expected and target dates

4.  Convert z-values to probabilities If there are several possible Paths: take largest standard deviation


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Example: Convert to activity-on-arrow diagram!

A

B

C

D

F

E

G

ES = day 0

Duration 5

Duration 6

Duration 10

Duration 9

Duration 8

Duration 3

Duration 4


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Example: (now activity on arrow!)

1 0

2

A 5

5

4

3

D=9

C 10

B=6

7

6

E 8

F 3

8 G

4 9

10

11


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Activity a m b te s z T Prob.

A 4 5 6

B 4 6 8

C 9 10 12

D 8 9 10

E 5 8 11

F 1 3 4

G 3 4 5

Complete the table Most likely time Pessimistic time

Optimistic time


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Example: t_e and standard deviations

1 0

2

A t=5

s=0.33

5

4

3

7

6

8

9

10

11

B t=6

s=0.67

C t=10.17 s=0.5

D 9

s=0.33

E t=8 s=1

F t=2.83 s=0.5

G t=4

s=0.33


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Activity

a m b te s z T Prob.

A 4 5 6 5 0.33

B 4 6 8 6 0.67

C 9 10 12 10.17 0.5

D 8 9 10 9 0.33

E 5 8 11 8 1

F 1 3 4 2.83 0.5

G 3 4 5 4 0.33

Complete the table (a+4m+b)/6

(b-a)/6


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Example: Expected dates

1 0

2 5

A t=5

s=0.33

5 14

4 15.17

3 11

7 14

6 15.17

8 23.17

9 16.83

10 23.17

11 27.17

B t=6

s=0.67

C t=10.17 s=0.5

D 9

s=0.33

E t=8 s=1

F t=2.83 s=0.5

G t=4

s=0.33


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Example: Cumulative standard deviations

1 0

2 5 0.33

A t=5

s=0.33

5 14 0.47

4 15.17 0.6

3 11 0.75

7 14 0.75

6 15.17 0.75

8 23.17 1.25

9 16.83 0.9

10 23.17 1.25

11 27.17 1.29

B t=6

s=0.67

C t=10.17 s=0.5

D 9

s=0.33

E t=8 s=1

F t=2.83 s=0.5

G t=4

s=0.33


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Evaluating schedule risks (cont‘d) !  Monte Carlo simulation as an alternative

!   Calculates large number of activity completion dates

!   Random selection of activity times from set of estimates

!   Input depending on available information, e.g. historic project information

!   Output can take form of graphs and summaries

!  Specialized software packages available !   Interfaces to project planning and spreadsheet

software !   Cost, resource, and duration estimates


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ICT project management 'runaways’…

!  Standish "Chaos" report !   1994:

•  16% success, •  31% cancelled •  53% challenged

!   2000: •  34% successful •  15% cancelled •  51% challenged


Project Management & Success !  Technical issues

!  Hardware/software/telecommunications systems don't work

!  Frequent failure/errors in operation !  Economic issues

!  Time or budget overrun !  Low/no ROI (“productivity paradox”)

!  Organizational (implementation) issues !  Resulting system fails to achieve desired benefit !  Users reject system

success34%

challenged51%

cancelled15%


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Project Escalation

!   Continued commitment in the face of negative information about prior resource allocations coupled with uncertainty surrounding the likelihood of goal attainment (Brockner, 1992)

Project Escalation

Psychol. Factors

Project Factors

Social Factors

Organiz. Factors


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Escalation factors

Project factors: !   Objective features of

the project !   Perception by

management !   Costs and benefits

associated with the project

!   Difficulties (risk) and duration

Risk of escalation: !   Large potential payoff !   Long-term investment

to reap gains !   Setbacks perceived as

temporary problems


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Escalation factors (cont‘d)

Psychological factors: !   „Things do not look that

bad“ !   Continuation will

eventually lead to success

!   Project manager’s previous experience

!   Emotional attachment

Risk of escalation: !   Errors in processing

information !   Throwing good money

after bad !   Self-justification


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Social factors: !   Competitive rivalry with

other social groups !   Needs for external

justification !   Norms for consistency

Risk of escalation: !   Competition between

decision-making groups !   “Staying the course”


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Organizational factors: !   Structural environment !   Political environment,

i.e. top management support

!   Institutionalization with organizational goals and values

Risk of escalation: !   Strong top management

support !   Institutionalization


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Deaf effect

Weak Strong

Mum

effe

ct

Wea

k S

trong

Organizational contexts of whistle blowing

Healthy organization

Ostrich organization

Deaf-dumb-blind organization

Cover-up organization


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Organizational contexts of whistle blowing (cont’d)

!   Mum-effect (reluctance to blow the whistle) !   Risks to own career !   Fear of reprisals !   Critical audit may

contradict best judgment and vested interest of powerful people

!   Deaf-effect (reluctance to hear the whistle) !   Organizational

leapfrogging as a remedy !   Executives insulate

themselves from dealing with non-urgent problems

!   Disassociating from failing endeavor


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Implication for project management practice !   IT managers:

!   Traditional project management approaches build on rational philosophy

!   Expand with behavioral and organizational perspective

!   Recognize tendency to over-commitment !   Alternative courses of action


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Implication for project management practice (cont’d) !  Organizations:

!   Match project management with development stage

!   Continuous risk assessment •  Probability of technical success •  Probability of customer acceptance

!   Serious project audits, e.g. review boards with appointed members

!   Reduce need for self-justification, e.g. by dividing initial and subsequent decision-making

sdpm - lecture 6 - risk management and project escalation

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