Risk Management
Prof. Tilottama Roy-Nair College: PIIT
This chapter contains the following:
4.1 Introduction
4.2 Risk identification
4.3 Risk projection
4.3.1 Risk table
4.3.2 Assessing risk impact
4.4 Risk assessment
4.5 Risk mitigation, monitoring and management (RMMM)
4.1 Introduction
Although there has been considerable debate about the proper definition of software risk, there is general agreement that risk always involves two characteristics:
Uncertainty - The risk may or may not happen. There are no 100% probable risks.
Loss - If a risk becomes a reality, unwanted consequences or losses will occur.
When risks are analyzed, it is important to quantify the level of uncertainty and the degree of loss associated with each risk. To accomplish this different categories of risk are considered.
i) Project risks threaten the project plan. If project risks become real, it is likely that the project schedule will slip and that costs will increase. Project risks identify budgetary, schedule, personnel, resource, customer and requirement related problems and their impact on a software project.
ii) Technical risk threatens the quality of the software to be produced. If a technical risk becomes a reality, implementation may become difficult or impossible. Technical risks identify design, implementation, interface, verification and maintenance problems.
iii) Business risks threaten the viability of the software to be built. Business risk often jeopardizes the project or the product. The most common business risks include:
a) Building a product that no one wants (market risk)
b) Building a product that no longer fits into the overall business strategy for the company (strategic risk)
c) Building a product that the sales force doesn’t know how to sell
d) Losing the support of management because of a change in focus or change in people (management risk)
e) Losing budgetary or personnel commitment (budget risk)
Another general categorization, based on the nature of predictability, is as follows:
i) Known risks: Risks that can be uncovered after a careful evaluation of the project plan, business and technical environment in which the project is being developed and other reliable information sources. For example, unrealistic delivery dates, lack of documented requirements, poor development environment, etc.
ii) Predictable risks: These are risks that are derived from past experience. For example, staff turnover, poor communication with the customer, etc.
iii) Unpredictable risks: These are risks that can and do occur, but are extremely difficult to identify in advance.
4.2 Risk identification
Risk identification is a systematic attempt to specify threats to the project plan. By identifying known and predictable risks, the project manager takes a first step towards avoiding them when possible and controlling them when necessary. There are two distinct types of risks:
i) Generic risks: These are a potential threat to every software project.
ii) Product-specific risks: These can be identified only by a clear understanding of the technology, the people and the environment that are specific to the project at hand.
One method to identify risks is to create a risk item checklist. The checklist can be used for risk identification and focuses on some subset of known and predictable risks in the following general categories:
· Product size: Risks associated with the overall size of the software to be built or modified.
· Business impact: Risks associated with constraints imposed by the management or the market.
· Customer characteristics: Risks associated with the sophistication of the customer and the developer’s ability to communicate with the customer in a timely manner.
· Process definition: Risks associated with the degree to which the software process has been defined.
· Development environment: Risks associated with the availability and the quality of the tools used to build the product.
· Technology: Risks associated with the complexity of the system to be built and the newness of the technology that is packaged by the system.
· Staff size and experience: Risks associated with the overall technical and project experience of the software engineers who will do the work.
The risk item checklist can be organized in different ways. Questions relevant to each of the topics can be answered for each software project. The answers to these questions allow the planner to estimate the impact of risk. A different risk item checklist format simply lists characteristics that are relevant to each general subcategory. Finally, a set of risk components and drivers are listed along with their probability of occurrence.
Risk components are defined in the following manner:
· Performance risk - The degree of uncertainty that the product will meet its requirement and be fit for its intended use.
· Cost risk - The degree of uncertainty that the project budget will be maintained
· Support risk - The degree of uncertainty that the resultant software will be easy to correct, adapt and enhance.
· Schedule risk - The degree of uncertainty that the project schedule will be maintained and the product will be delivered on time.
The impact of each risk driver on the risk component is divided into one of four impact categories – negligible, marginal, critical or catastrophic.
4.3 Risk projection
Risk projection, also called risk estimation, attempts to rate each risk in two ways - the likelihood or probability that the risk is real and the consequences of the problem associated with the risk. The project planner, along with other managers and technical staff, performs four risk projection activities:
i) Establish a scale that reflects the perceived probability of a risk
ii) Delineate the consequences of the risk
iii) Estimate the impact of the risk on the project and the product
iv) Note the overall accuracy of the risk projection so that there will be no misunderstandings.
4.3.1 Risk table
A risk table provides a project manager with a simple technique for risk projection. A project team begins by listing all risks (no matter how remote) in the first column of the table. This can be accomplished with the help of the risk item checklists. Each risk is categorized in the second column (e.g., PS implies a project size risk, BU implies a business risk). Team members can estimate the probability of occurrence of each risk individually. Individual team members are polled in round-robin fashion until their assessment of risk probability begins to converge.
Next, the impact of each risk is assessed. Each risk component is assessed and an impact category is determined. The categories for each of the four risk components - performance, support, cost and schedule are averaged to determine an overall impact value.
Once the first four columns of the risk table have been completed, the table is sorted by probability and by impact. High probability, high impact risks percolate to the top of the table and low probability risks drop to the bottom. This accomplishes first order risk prioritization.
The project manager studies the resultant sorted table and defines a cut-off line. The cut-off line will be given further attention. Risks that fall below the line are re-evaluated to accomplish second-order prioritization. A risk factor that has a high impact but a very low probability of occurrence should not absorb significant amount of management time. However, high impact risks with moderate to high probability and low impact risks with high probability should be carried forward into the risk analysis steps that follow. All risks that lie above the cut-off line must be managed. Making individual estimates and then developing a single consensus value can determine risk probability. Although that approach is workable, more sophisticated techniques for determining risk probability have been developed. Risk drivers can be assessed on a qualitative probability scale that has the following values: impossible, improbable, probable and frequent. Mathematical probability can then be associated with each qualitative value. For example, a probability of 0.7 to 1.0 implies a highly probable risk.
Risks
Category
Probability
Impact
Size estimate may be significantly low
PS
0.6
2
Larger number of users than planned
PS
0.3
3
Lesser users than planned
PS
0.7
2
End-users resist the system
BU
0.4
3
Delivery deadline will be tightened
BU
0.5
2
Funding will be lost
CU
0.4
1
Customer will change requirements
PS