© 2004, david gadish, ph.d.1 project management cis 486 fall 2005 week 8 lecture dr. david gadish
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© 2004, David Gadish, Ph.D. 1
Project ManagementProject ManagementCIS 486CIS 486
Fall 2005Fall 2005
Week 8 LectureWeek 8 Lecture
Dr. David GadishDr. David Gadish
© 2004, David Gadish, Ph.D. 2
Week 7 Review
Incorporating GIS in IT Projects (Not in book) Project Communications Management (Ch
10)
© 2004, David Gadish, Ph.D. 3
Week 8 Overview
Project Risk Management (Ch 11) Project Procurement Management (Ch 12)
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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?
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Other Categories of Risk
Financial risk: Can the organization afford to undertake
the project? Is this project the best way to use the
company’s financial resources?
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Other Categories of Risk
Technology risk: Is the project technically feasible? Could the technology be obsolete before a
useful product can be produced?
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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General Risk Mitigation Strategies for Technical, Cost, and Schedule Risks
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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?
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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
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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
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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
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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
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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.
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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
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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
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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
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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”
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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
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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
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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
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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
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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
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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
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Next Week’s Agenda
Student Project Presentations– One group per lecture