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Risk - The Complete Tool Set
Other Risk Management Issues
As documented by Thomsett (1992, 2002), Tarek Abdel-Hamid and Stuart Madnick (1991), the risk of the project affects the estimates, staffing, project justification and strategies.
Estimates
Fig. 8 - Project Risk and Estimation -
same task, same project
Simply, the higher the risk of the project the higher the estimation error. Studies by the Rand Corporation, Charles Perrow [1984] and others of engineering and IT projects reveal that for high risk projects, estimation errors of 5:1 or greater are common.
In addition, the risk of a project and/or task affects the shape of the estimation curve. As shown in Figure 8, for the same project and the same task, depending upon whether the person undertaking the estimate perceives the task as either Low or High risk, the shape of the Best, Likely, Worst case estimates and the size of the estimation range are completely different.
If nothing else changes in your project, the least you should be able to achieve is that all estimates are undertaken after a formal (i.e. public and standard) Project Risk assessment is completed.
Tim Lister and Tom DeMarco's book Waltzing With Bears (2003) and Radical Project Management [op. cit.] explore this relationship in more detail.
Staffing
Given that people are the most significant risk factor in projects, the higher the risk of the project the higher the requirement for staffing the project with the best people and teams. Many Organisations have increased risk in already risky projects by placing inexperienced people on the project and by under-investing in team-building.
Project Financial Justification
It pays to be paranoid (redux) and other mixed metaphors
When IBM and IBMGS were undertaking the IT development for the Atlanta Olympics, Time magazine ran an article about the problems (read risks) IBM endured during that massive and complex project. The article contained what should be an immortal phrase "IBM seemed to be moving its troops further into the valley of unjustified optimism."
One of the most destructive behaviors in project management is the "unjustified optimism" that many less experienced project managers, many stakeholders and executives seem to hold on to when planning projects.
As the truism says, plan for the worst and hope for the best.
By nature, risk assessment forces you to face the dark side of the force.
It is important that you get people comfortable with this intrinsically negative assessment process by reminding them that by being negative (for a short period) you get a really positive outcome. Proactive management of risks leads to more successful projects (and less pain).
A project with a Return-on-Investment of 25% per year looks totally different when management are informed that it is High risk with 15 major risk factors beyond the team's capability to manage as distinct from being told that it is a Low risk project.
Simply, any project justification or Business Case is completely useless (and unprofessional) without a highly-structured and documented risk management process. As consultants, when we're reviewing a project, the first document we look for is the Risk Assessment and Risk Memorandums. Without these, we cannot evaluate the estimates, the strategy, the plans or any other project details (see Radical Project Management for more detail).
Project Development Strategy
As discussed by Thomsett [op. cit.], there are numerous project development strategies available for system development. The choice of strategies such as release, fast-track, RAD, time-boxing, agile and prototyping are highly dependent on the risk of the project. For example, in the construction industry, the fast-track strategy is associated with high risk construction.
Many software projects have failed because the wrong strategy was applied. Formal risk management can ensure that the appropriate strategy is being used for the project. For example, to undertake a high risk project using the classic waterfall strategy would condemn the project to failure through analysis-paralysis as the continuous change associated with most high risk projects would mean the team would re-loop through analysis, re-loop through analysis, re-loop through analysis and so on and so on.