Risk Analysis and RMMM

REACTIVE VS. PROACTIVE RISK STRATEGIES

 Reactive risk strategies - worrying about problems when they happen

 Proactive risk strategies - begin long before technical work is initiated

o Potential risks are identified

o Their probability and impact are assessed

o They are ranked by importance

 Not all risks can be avoided

 Team works to develop a contingency plan that will enable it to respond in a

controlled and effective manner

SOFTWARE RISKS

Risk always involves two characteristics:

 Uncertainty—the risk may or may not happen; that is, there are no 100%
probable risks

 Loss—if the risk becomes a reality, unwanted consequences or losses will

occur

Must quantify:

 Level of uncertainty

 Degree of loss associated with each risk

Kinds of Risks:

Project risks threaten the project plan.

Identify potential budgetary, schedule, personnel (staffing and organization),

resource, customer, and requirements problems and their impact on a software
project

Technical risks threaten the quality and timeliness of the software to be produced

 Identify potential design, implementation, interface, verification, and

maintenance problems.

 Specification ambiguity, technical uncertainty, technical obsolescence, and

"leading-edge" technology are risk factors.

 Technical risks occur because the problem is harder to solve than we thought
it would be.

Business risks threaten the viability of the software to be built.

Top five business risks :

(1) building an excellent product or system that no one really wants (market risk)

(2) building a product that no longer fits into the overall business strategy for the
company (strategic risk)

(3) building a product that the sales force doesn't understand how to sell

(4) losing the support of senior management due to a change in focus or a change
in people (management risk)

(5) losing budgetary or personnel commitment (budget risks).

Known risks - uncovered after evaluation:

 Project plan

 Business and technical environment in which the project is being developed

 Other reliable information sources (e.g., unrealistic delivery date, lack of

documented requirements or software scope, poor development
environment).

Predictable risks - extrapolated from past project experience

E.g.,

· staff turnover

· poor communication with the customer

· dilution of staff effort as ongoing maintenance requests are serviced

Unpredictable risks - occur, but difficult to identify in advance.

RISK IDENTIFICATION

· Attempt to specify threats to the project plan (estimates, schedule, resource

loading, etc.)

· Two types of risks:

O Generic risks - potential threat to every software project.

O Product-specific risks - identified by: those with a clear understanding of the

technology, the people, and the environment that is specific to the project at hand.

§ Identify by looking at the project plan and the software statement of scope
Risk item checklist

 Product size—risks associated with the overall size of the software to be

built or modified.

 Business impact—risks associated with constraints imposed by management

or the marketplace.

 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 and is followed by the development organization.

 Development environment—risks associated with the availability and quality

of the tools to be used to build the product.

 Technology to be built—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.
Risk Components and Drivers

The project manager identify the risk drivers that affect software risk components
—performance, cost, support, and schedule.

· Risk components:

(1) Performance risk—the degree of uncertainty that the product will meet its
requirements and be fit for its intended use.

(2) Cost risk—the degree of uncertainty that the project budget will be maintained.

(3) Support risk—the degree of uncertainty that the resultant software will be easy
to correct, adapt, and enhance.

(4) Schedule risk—the degree of uncertainty that the project schedule will be
maintained and that the product will be delivered on time.

· Impact of each risk driver on the risk component is divided into one of four
impact categories—negligible, marginal, critical, or catastrophic

Figure 1 - Risk Characterization Table

RISK PROJECTION (RISK ESTIMATION)

Attempts to rate each risk in two ways

· The probability that the risk is real

· The consequences of the problems associated with the risk, should it occur.

Project planner, along with other managers and technical staff, performs four risk
projection activities:

(1) establish a measure that reflects the perceived likelihood of a risk

(2) describe the consequences of the risk

(3) estimate the impact of the risk on the project and the product

(4) note the overall accuracy of the risk projection so that there will be no
misunderstandings.

Developing a Risk Table

Risk table provides a project manager with a simple technique for risk projection

Figure 2 - Risk Table

Steps in Setting up Risk Table

(1) Project team begins by listing all risks in the first column of the table.

Accomplished with the help of the risk item checklists.

(2) Each risk is categorized in the second column

(e.g., PS implies a project size risk, BU implies a business risk).

(3) The probability of occurrence of each risk is entered in the next column of the
table.

The probability value for each risk can be estimated by team members
individually.

Assessing Impact of Each Risk

(1) Each risk component is assessed using the Risk Charcterization Table (Figure
1) and impact category is determined.

(2) Categories for each of the four risk components—performance, support, cost,
and schedule—are averaged to determine an overall impact value.

1. A risk that is 100 percent probable is a constraint on the software project.

2. The risk table should be implemented as a spreadsheet model. This enables

easy manipulation and sorting of the entries.

3. A weighted average can be used if one risk component has more significance
for the project.

(3) 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.

(4) Project manager studies the resultant sorted table and defines a cutoff line.

· cutoff line (drawn horizontally at some point in the table) implies that only
risks that lie above the line will be given further attention.

· Risks below the line are re-evaluated to accomplish second-order

prioritization.

· Risk impact and probability have a distinct influence on management

concern.
O Risk factor with a high impact but a very low probability of occurrence
should not absorb a significant amount of management time.

O 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 cutoff line must be managed.

· The column labeled RMMM contains a pointer into a Risk Mitigation,

Monitoring and Management Plan

Assessing Risk Impact

· Three factors determine the consequences if a risk occur:

O Nature of the risk - the problems that are likely if it occurs.

 e.g., a poorly defined external interface to customer hardware (a technical

risk) will likely result in system integration issues later in a project and will
prevent early design and testing.

O Scope of a risk - combines the severity with its overall distribution (how much
of the project will be affected or how many customers are harmed?).

O Timing of a risk - when and how long the impact will be felt.

· Steps recommended to determine the overall consequences of a risk:

1. Determine the average probability of occurrence value for each risk

component.

2. Using Figure 1, determine the impact for each component based on the
criteria shown.

3. Complete the risk table and analyze the results as described in the preceding
sections.

Overall risk exposure, RE, determined using:

RE = P x C

P is the probability of occurrence for a risk

C is the the cost to the project should the risk occur.

Example

Assume the software team defines a project risk in the following manner:

Risk identification.

· Only 70 percent of the software components scheduled for reuse will be

integrated into the application.

· The remaining functionality will have to be custom developed.

Risk probability. 80% (likely).

Risk impact.

· 60 reusable software components were planned.

· If only 70 percent can be used, 18 components would have to be developed

from scratch (in addition to other custom software that has been scheduled for
development).

· Since the average component is 100 LOC and local data indicate that the
software engineering cost for each LOC is $14.00, the overall cost (impact) to
develop the components would be 18 x 100 x 14 = $25,200.
Risk exposure. RE = 0.80 x 25,200 ~ $20,200.

[ Risk Identification:

The software team identifies that only 70 percent of the scheduled software
components for reuse will be integrated into the application.

The remaining functionality will have to be custom developed.

Risk Probability:

The probability of this risk occurring is estimated at 80%, indicating that it is

considered likely.

Risk Impact:

Initially, the plan was to have 60 reusable software components.

If only 70% can be used, this means 30% (100% - 70%) of the components need to
be developed from scratch.

The number of components to be developed from scratch is calculated as 30% of

60, which is 18 components.

It's given that the average component size is 100 lines of code (LOC).

The software engineering cost per LOC is $14.00.

The overall cost to develop the additional components is calculated as 18

(components) x 100 (LOC per component) x $14.00 (cost per LOC) = $25,200.

Risk Exposure:

The risk exposure is calculated by multiplying the risk probability by the estimated
cost impact.
Risk Exposure (RE) = Risk Probability x Impact = 0.80 (80%) x $25,200 =
$20,160 (rounded to the nearest hundred).

Risk Assessment

· Have established a set of triplets of the form:

[ri, li, xi]

Where

Ri is risk

Li is the likelihood (probability) of the risk

Xi is the impact of the risk.

· During risk assessment :

O further examine the accuracy of the estimates that were made during risk
projection

O attempt to rank the risks that have been uncovered

O begins thinking about ways to control and/or avert risks that are likely to
occur.

· Must Define a risk referent level

O performance, cost, support, and schedule represent risk referent levels.

O There is a level for performance degradation, cost overrun, support difficulty,
or schedule slippage (or any combination of the four) that will cause the project to
be terminated.

O A risk referent level has a single point, called the referent point or break
point, at which the decision to proceed with the project or terminate it are equally
weighted.

· Referent level rarely represented as a smooth line on a graph.

· Most cases - a region in which there are areas of uncertainty

· Therefore, during risk assessment, perform the following steps:

1. Define the risk referent levels for the project.

2. Attempt to develop a relationship between each (ri, li, xi) and each of the
referent levels.

3. Predict the set of referent points that define a region of termination, bounded
by a curve or areas of uncertainty.

4. Try to predict how compound combinations of risks will affect a referent

level.

RISK REFINEMENT

· A risk may be stated generally during early stages of project planning.

· With time, more is learned about the project and the risk

O may be possible to refine the risk into a set of more detailed risks

RISK MITIGATION, MONITORING, AND MANAGEMENT

Effective strategy must consider three issues:

 Risk avoidance

 Risk monitoring

 Risk management and contingency planning

· Proactive approach to risk - avoidance strategy.

· Develop risk mitigation plan.

· e.g. Assume high staff turnover is noted as a project risk, r1.

· Based on past history

O the likelihood, l1, of high turnover is estimated to be 0.70

O the impact, x1, is projected at level 2.

O So… high turnover will have a critical impact on project cost and schedule.

· Develop a strategy to mitigate this risk for reducing turnover.

· Possible steps to be taken

o Meet with current staff to determine causes for turnover (e.g., poor working
conditions, low pay, competitive job market).

o Mitigate those causes that are under our control before the project starts.

o Once the project commences, assume turnover will occur and develop
techniques to ensure continuity when people leave.

o Organize project teams so that information about each development activity

is widely dispersed.

o Define documentation standards and establish mechanisms to be sure that

documents are developed in a timely manner.

o Conduct peer reviews of all work (so that more than one person is "up to
speed").

o Assign a backup staff member for every critical technologist.

· Project manager monitors for likelihood of risk

· For high staff turnover, the following factors can be monitored:

o General attitude of team members based on project pressures.

 o The degree to which the team has jelled(to work together).

o Interpersonal relationships among team members.

o Potential problems with compensation and benefits.

o The availability of jobs within the company and outside it.

· Project manager should monitor the effectiveness of risk mitigation steps.

· Risk management and contingency planning assumes that mitigation

efforts have failed and that the risk has become a reality.

E.g., the project is underway and a number of people announce that they will be
leaving.

· Mitigation strategy makes sure:

§ backup is available

§ information is documented

§ knowledge has been dispersed across the team.

· RMMM steps incur additional project cost

E.g. Spending time to "backup" every critical technologist costs money.

· Large project - 30 or 40 risks.

· Work performed during earlier risk analysis steps will help the planner to
determine which of the risks that lead to the highest risk exposure).

THE RMMM PLAN

· Risk Mitigation, Monitoring and Management Plan (RMMM) - documents

all work performed as part of risk analysis and is used by the project manager as
part of the overall project plan.
· Alternative to RMMM - risk information sheet (RIS)

RIS is maintained using a database system, so that creation and information entry,
priority ordering, searches, and other analysis may be accomplished easily.

1. Risk monitoring is a project tracking activity

2. Three primary objectives:

1. Assess whether predicted risks do, in fact, occur

 2. Ensure that risk aversion steps defined for the risk are being properly
applied

3. Collect information that can be used for future risk analysis.

 Problems that occur during a project can be traced to more than one risk.

o Another job of risk monitoring is to attempt to allocate origin (what

risk(s) caused which problems throughout the project).