© 2004, David Gadish, Ph.D.1 Project Management CIS 486 Fall 2005 Week 8 Lecture Dr. David Gadish

© 2004, David Gadish, Ph.D. 1

Project ManagementProject ManagementCIS 486CIS 486

Fall 2005Fall 2005

Week 8 LectureWeek 8 Lecture

Dr. David GadishDr. David Gadish


Week 7 Review

Incorporating GIS in IT Projects (Not in book) Project Communications Management (Ch

10)


Week 8 Overview

Project Risk Management (Ch 11) Project Procurement Management (Ch 12)

4

Project Risk Management

Chapter 11


Learning Objectives Understand what risk is and the importance of good

project risk management Discuss the elements involved in risk management

planning List common sources of risks on IT projects Describe the risk identification process and tools and

techniques to help identify project risks Discuss the qualitative risk analysis process and

explain how to calculate risk factors, use probability/impact matrixes, the Top Ten Risk Item Tracking technique, and expert judgment to rank risks


Learning Objectives Explain the quantify risk analysis process

and how to use decision trees and simulation to quantify risks

Provide examples of using different risk response planning strategies such as risk avoidance, acceptance, transference, and mitigation


Learning Objectives Discuss what is involved in risk monitoring

and control Describe how software can assist in project

risk management Explain the results of good project risk

management


The Importance of Project Risk Management Project risk management is the art and science of

identifying, assigning, and responding to risk throughout the life of a project – in the best interests of meeting project objectives

Risk management is often overlooked on projects, but it can help improve project success by helping select good projects, determining project scope, and developing realistic estimates

KPMG study found that 55 percent of runaway projects did no risk management at all


Project Management Maturity by Industry Group and Knowledge Area


What is Risk?

A dictionary definition of risk is “the possibility of loss or injury”

Project risk involves understanding potential problems that might occur on the project and how they might impede project success

Risk management is like a form of insurance; it is an investment


Risk Utility Risk utility or risk tolerance is the amount

of satisfaction or pleasure received from a potential payoff– Utility rises at a decreasing rate for a person

who is risk-averse– Those who are risk-seeking have a higher

tolerance for risk and their satisfaction increases when more payoff is at stake

– The risk-neutral approach achieves a balance between risk and payoff


Risk Utility Function and Risk Preference


What is Project Risk Management? The goal of project risk management is to

minimize potential risks while maximizing potential opportunities.

Major processes include:– Risk management planning: deciding how to

approach and plan the risk management activities for the project

– Risk identification: determining which risks are likely to affect a project and documenting their characteristics

– Qualitative risk analysis: characterizing and analyzing risks and prioritizing their effects on project objectives


What is Project Risk Management?

– Quantitative risk analysis: measuring the probability and consequences of risks

– Risk response planning: taking steps to enhance opportunities and reduce threats to meeting project objectives

– Risk monitoring and control: monitoring known risks, identifying new risks, reducing risks, and evaluating the effectiveness of risk reduction


Risk Management Planning

The main output of risk management planning is a risk management plan

The project team should review project documents and understand the organization’s and the sponsor’s approach to risk

The level of detail will vary with the needs of the project


Questions Addressed in a Risk Management Plan


Contingency and Fallback Plans, Contingency Reserves Contingency plans are predefined actions

that the project team will take if an identified risk event occurs

Fallback plans are developed for risks that have a high impact on meeting project objectives

Contingency reserves or allowances are provisions held by the project sponsor that can be used to mitigate cost or schedule risk if changes in scope or quality occur


Common Sources of Risk on IT Projects IT projects share some common sources of

risk The Standish Group developed an IT

success potential scoring sheet based on potential risks

McFarlan developed a risk questionnaire to help assess risk


IT Success Potential Scoring Sheet

Success Criterion Points

User Involvement 19

Executive Management support 16

Clear Statement of Requirements 15

Proper Planning 11

Realistic Expectations 10

Smaller Project Milestones 9

Competent Staff 8

Ownership 6

Clear Visions and Objectives 3

Hard-Working, Focused Staff 3

Total 100


McFarlan’s Risk Questionnaire1. What is the project estimate in calendar (elapsed) time?

( ) 12 months or less Low = 1 point

( ) 13 months to 24 months Medium = 2 points

( ) Over 24 months High = 3 points

2. What is the estimated number of person days for the system?

( ) 12 to 375 Low = 1 point

( ) 375 to 1875 Medium = 2 points

( ) 1875 to 3750 Medium = 3 points

( ) Over 3750 High = 4 points

3. Number of departments involved (excluding IT)

( ) One Low = 1 point

( ) Two Medium = 2 points

( ) Three or more High = 3 points

4. Is additional hardware required for the project?

( ) None Low = 0 points

( ) Central processor type change Low = 1 point

( ) Peripheral/storage device changes Low = 1

( ) Terminals Med = 2

( ) Change of platform, for example High = 3

PCs replacing mainframes


Other Categories of Risk

Market risk: Will the new product be useful to the

organization or marketable to others? Will users accept and use the product or

service?



Financial risk: Can the organization afford to undertake

the project? Is this project the best way to use the

company’s financial resources?



Technology risk: Is the project technically feasible? Could the technology be obsolete before a

useful product can be produced?


Risk Identification

Risk identification is the process of understanding what potential unsatisfactory outcomes are associated with a particular project

Several risk identification tools and techniques include– Brainstorming– The Delphi technique– Interviewing– SWOT analysis


Potential Risk Conditions Associated with Each Knowledge Area

Knowledge Area Risk Conditions

Integration Inadequate planning; poor resource allocation; poor integration management; lack of post-project review

Scope Poor definition of scope or work packages; incomplete definition of quality requirements; inadequate scope control

Time Errors in estimating time or resource availability; poor allocation and management of float; early release of competitive products

Cost Estimating errors; inadequate productivity, cost, change, or contingency control; poor maintenance, security, purchasing, etc.

Quality

Poor attitude toward quality; substandard design/materials/workmanship; inadequate quality assurance program

Human Resources Poor conflict management; poor project organization and definition of responsibilities; absence of leadership

Communications Carelessness in planning or communicating; lack of consultation with key stakeholders

Risk Ignoring risk; unclear assignment of risk; poor insurance management

Procurement Unenforceable conditions or contract clauses; adversarial relations


Quantitative Risk Analysis Assess the likelihood and impact of

identified risks to determine their magnitude and priority

Risk quantification tools and techniques include – Probability/Impact matrixes– The Top 10 Risk Item Tracking technique– Expert judgment


Sample Probability/Impact Matrix


Sample Probability/Impact Matrix for Qualitative Risk Assessment


Chart Showing High-, Medium-, and Low-Risk Technologies


Top 10 Risk Item Tracking Top 10 Risk Item Tracking is a tool for

maintaining an awareness of risk throughout the life of a project

Establish a periodic review of the top 10 project risk items

List the current ranking, previous ranking, number of times the risk appears on the list over a period of time, and a summary of progress made in resolving the risk item


Example of Top 10 Risk Item Tracking

Monthly Ranking

Risk Item This

Month

Last

Month

Number of Months

Risk Resolution Progress

Inadequate planning

1 2 4 Working on revising the entire project plan

Poor definition of scope

2 3 3 Holding meetings with project customer and sponsor to clarify scope

Absence of leadership

3 1 2 Just assigned a new project manager to lead the project after old one quit

Poor cost estimates

4 4 3 Revising cost estimates

Poor time estimates

5 5 3 Revising schedule estimates


Expert Judgment

Many organizations rely on the intuitive feelings and past experience of experts to help identify potential project risks

Experts can categorize risks as high, medium, or low with or without more sophisticated techniques


Quantitative Risk Analysis

Often follows qualitative risk analysis, but both can be done together or separately

Large, complex projects involving leading edge technologies often require extensive quantitative risk analysis

Main techniques include– decision tree analysis– simulation


Decision Trees and Expected Monetary Value (EMV) A decision tree is a diagramming method

used to help select the best course of action in situations in which future outcomes are uncertain

EMV is a type of decision tree where you calculate the expected monetary value of a decision based on its risk event probability and monetary value


Expected Monetary Value (EMV) Example


Simulation Simulation uses a representation or model of a

system to analyze the expected behavior or performance of the system

Monte Carlo analysis simulates a model’s outcome many times to provide a statistical distribution of the calculated results

To use a Monte Carlo simulation, you must have three estimates (most likely, pessimistic, and optimistic) plus an estimate of the likelihood of the estimate being between the optimistic and most likely values


Risk Response Planning After identifying and quantifying risks,

you must decide how to respond to them Four main strategies:

– Risk avoidance: eliminating a specific threat or risk, usually by eliminating its causes

– Risk acceptance: accepting the consequences should a risk occur


Risk Response Planning– Risk transference: shifting the consequence

of a risk and responsibility for its management to a third party

– Risk mitigation: reducing the impact of a risk event by reducing the probability of its occurrence


General Risk Mitigation Strategies for Technical, Cost, and Schedule Risks


Risk Monitoring and Control

Monitoring risks involves knowing their status

Controlling risks involves carrying out the risk management plans as risks occur

Workarounds are unplanned responses to risk events that must be done when there are no contingency plans

The main outputs of risk monitoring and control are corrective action, project change requests, and updates to other plans


Risk Response Control Risk response control involves executing the

risk management processes and the risk management plan to respond to risk events

Risks must be monitored based on defined milestones and decisions made regarding risks and mitigation strategies

Sometimes workarounds or unplanned responses to risk events are needed when there are no contingency plans


Using Software to Assist in Project Risk Management Databases can keep track of risks. Many IT

departments have issue tracking databases Spreadsheets can aid in tracking and

quantifying risks More sophisticated risk management

software, such as Monte Carlo simulation tools, help in analyzing project risks


Sample Monte Carlo Simulation Results for Project Schedule


Sample Monte Carlo Simulations Results for Project Costs


Results of Good Project Risk Management Unlike crisis management, good project risk

management often goes unnoticed Well-run projects appear to be almost

effortless, but a lot of work goes into running a project well

Project managers should strive to make their jobs look easy to reflect the results of well-run projects

46

Project Procurement Management

Chapter 12


Learning Objectives Understand the importance of project procurement

management and the increasing use of outsourcing for IT projects

Describe the procurement planning process, procurement planning tools and techniques, types of contracts, and statements of work

Discuss what is involved in solicitation planning and the difference between a request for proposal and a request for quote

Explain what occurs during the solicitation process


Learning Objectives

Describe the source selection process and different approaches for evaluating proposals or selecting suppliers

Discuss the importance of good contract administration

Describe the contract close-out process Discuss types of software available to assist in

project procurement management


Importance of Project Procurement Management Procurement means acquiring goods and/or

services from an outside source Other terms include purchasing and outsourcing Experts predicted that by the year 2003 the

worldwide IT outsourcing market would grow to over $110 billion

U.S. federal spending on IT outsourcing is projected to increase from $6.6 billion in 2002 to nearly $15 billion by 2007 due to an emphasis on e-government, homeland security, and the shortage of IT workers in government


Why Outsource?

To reduce both fixed and recurrent costs To allow the client organization to focus on

its core business To access skills and technologies To provide flexibility To increase accountability


Project Procurement Management Processes Procurement planning: determining

what to procure and when Solicitation planning: documenting

product requirements and identifying potential sources

Solicitation: obtaining quotations, bids, offers, or proposals as appropriate


Project Procurement Management Processes Source selection: choosing from among

potential vendors Contract administration: managing the

relationship with the vendor Contract close-out: completion and

settlement of the contract


Project Procurement Management Processes and Key Outputs


Procurement Planning Procurement planning involves identifying

which project needs can be best met by using products or services outside the organization.

It includes deciding:– whether to procure– how to procure– what to procure– how much to procure– when to procure


Procurement Planning Tools and Techniques Make-or-buy analysis: determining whether

a particular product or service should be made or performed inside the organization or purchased from someone else. Often involves financial analysis

Experts, both internal and external, can provide valuable inputs in procurement decisions


Make-or Buy Example

Assume you can lease an item you need for a project for $150/day. To purchase the item, the investment cost is $1,000, and the daily cost would be another $50/day.

How long will it take for the lease cost to be the same as the purchase cost?

If you need the item for 12 days, should you lease it or purchase it?


Make-or Buy Solution Set up an equation so the “make” is equal to the “buy” In this example, use the following equation. Let d be the

number of days to use the item.$150d = $1,000 + $50d

Solve for d as follows:– Subtract $50d from the right side of the equation to get

$100d = $1,000– Divide both sides of the equation by $100

d = 10 days The lease cost is the same as the purchase cost at 10 days If you need the item for 12 days, it would be more economical

to purchase it


Types of Contracts

Fixed-price or lump-sum: involve a fixed total price for a well-defined product or service

Cost-reimbursable: involve payment to the seller for direct and indirect costs

Time and material contracts: hybrid of both fixed-price and cost-reimbursable, often used by consultants

Unit price contracts: require the buyer to pay the seller a predetermined amount per unit of service


Cost Reimbursable Contracts Cost plus incentive fee (CPIF): the buyer pays the

seller for allowable performance costs plus a predetermined fee and an incentive bonus

Cost plus fixed fee (CPFF): the buyer pays the seller for allowable performance costs plus a fixed fee payment usually based on a percentage of estimated costs

Cost plus percentage of costs (CPPC): the buyer pays the seller for allowable performance costs plus a predetermined percentage based on total costs


Contract Types Versus Risk


Statement of Work (SOW)

A statement of work is a description of the work required for the procurement

Many contracts, or mutually binding agreements, include SOWs

A good SOW gives bidders a better understanding of the buyer’s expectations


Statement of Work (SOW) TemplateI. Scope of Work: Describe the work to be done to detail. Specify the hardware and

software involved and the exact nature of the work.

II. Location of Work: Describe where the work must be performed. Specify the location of hardware and software and where the people must perform the work

III. Period of Performance: Specify when the work is expected to start and end, working hours, number of hours that can be billed per week, where the work must be performed, and related schedule information.

IV. Deliverables Schedule: List specific deliverables, describe them in detail, and specify when they are due.

V. Applicable Standards: Specify any company or industry-specific standards that are relevant to performing the work.

VI. Acceptance Criteria: Describe how the buyer organization will determine if the work is acceptable.

VII. Special Requirements: Specify any special requirements such as hardware or software certifications, minimum degree or experience level of personnel, travel requirements, and so on.


Solicitation Planning Solicitation planning involves preparing

several documents:– Request for Proposals: used to solicit

proposals from prospective sellers – Requests for Quotes: used to solicit

quotes for well-defined procurements– Invitations for bid or negotiation and

initial contractor responses are also part of solicitation planning


Outline for a Request for Proposal (RFP)

I. Purpose of RFP

II. Organization’s Background

III. Basic Requirements

IV. Hardware and Software Environment

V. Description of RFP Process

VI. Statement of Work and Schedule Information

VII. Possible Appendices

A. Current System Overview

B. System Requirements

C. Volume and Size Data

D. Required Contents of Vendor’s Response to RFP

E. Sample Contract


Solicitation Solicitation involves obtaining proposals or

bids from prospective sellers Organizations can advertise to procure goods

and services in several ways– approaching the preferred vendor

– approaching several potential vendors

– advertising to anyone interested

A bidders’ conference can help clarify the buyer’s expectations


Source Selection Source selection involves

– evaluating bidders’ proposals– choosing the best one– negotiating the contract– awarding the contract

It is helpful to prepare formal evaluation procedures for selecting vendors

Buyers often create a “short list”


Sample Proposal Evaluation Sheet


Detailed Criteria for Selecting Suppliers


Be Careful in Selecting Suppliers and Writing Their Contracts Many dot-com companies were created to

meet potential market needs, but many went out of business, mainly due to poor business planning, lack of senior management operations experience, lack of leadership, and lack of visions. Check the stability of suppliers

Even well-known suppliers can impede project success. Be sure to write and manage contracts well with all suppliers


Contract Administration Contract administration ensures that the

seller’s performance meets contractual requirements

Contracts are legal relationships, so it is important that legal and contracting professionals be involved in writing and administering contracts

Many project managers ignore contractual issues, which can result in serious problems


Suggestions on Change Control for Contracts Changes to any part of the project need to

be reviewed, approved, and documented by the same people in the same way that the original part of the plan was approved

Evaluation of any change should include an impact analysis. How will the change affect the scope, time, cost, and quality of the goods or services being provided?

Changes must be documented in writing. Project team members should also document all important meetings and telephone calls


Contract Close-out Contract close-out includes

– product verification to determine if all work was completed correctly and satisfactorily

– administrative activities to update records to reflect final results

– archiving information for future use

Procurement audits identify lessons learned in the procurement process


Using Software to Assist in Project Procurement Management Word processing software helps in

writing proposals and contracts, spreadsheets help in evaluating suppliers, databases help track suppliers, and presentation software aids in presenting procurement-related information

In the late 1990s and early 2000s, many companies started using e-procurement software to do many procurement functions electronically


Using Software to Assist in Project Procurement Management Companies such as Commerce One,

Ariba, Concur Technologies, SAS, and Baan provide corporate procurement services over the Internet

Organizations also use other Internet tools to help find information on suppliers or auction goods and services


Questions?


Next Week’s Agenda

Student Project Presentations– One group per lecture


In 2 Weeks

Student Project Presentation– Monday

Course Wrap-up & PM Discussion– Wednesday

Documents

© 2004, David Gadish, Ph.D.1 Project Management CIS 486 Fall 2005 Week 8 Lecture Dr. David Gadish