| Most organizations have more project proposals and | | | | $5,000 + $2,000 + $8,000 or $15,000. The return is |
| ideas than they can realistically fund. This means | | | | now $20,000 - $15,000 or $5,000, making the project |
| project teams are competing for project approval | | | | substantially less attractive than it originally appeared. |
| and funding. Consequently, project champions often | | | | But by managing the risks, the value of this project |
| conceal or exaggerate the true value of their | | | | can be increased to a level that again makes it |
| projects. Teams and organizations typically focus on | | | | attractive.1. First, the requirements could be tightened |
| the up-front costs of a project and the expected | | | | by first developing a proof-of-concept or simply |
| return. Other costs are glossed over or ignored | | | | by delaying the project until the uncertainties can be |
| entirely, and risk assessment is treated as a | | | | eliminated. By taking this approach, the |
| perfunctory afterthought. This focus on the up-front | | | | value of the project can be increased by eliminating |
| costs and the net return is only half of the story, | | | | the $5,000 reduction for the risk of uncertainty.2. A |
| however.It may be time to stop thinking of risk | | | | proof-of-concept could also be evaluated by the |
| assessment as the killjoy exercise which drains the | | | | sales force to ensure that they will not |
| enthusiasm from your project and to start thinking | | | | need training, as feared, thereby eliminating the |
| of it as a tool for enhancing your project's | | | | second risk and increasing the project's |
| value.Understanding the Fundamentals:A project risk is | | | | value by an additional $2,000.3. Finally, although |
| any problem that could cause some loss or threaten | | | | external uncertainties cannot be eliminated, mitigation |
| the success of the project1. Risks differ from issues | | | | and contingency |
| because they refer to the future or to the potential | | | | plans can be put in place to reduce the overall |
| for adverse outcome."A risk consists of a condition | | | | impact on the project's value. For example, |
| which is not currently true, the likelihood that the | | | | instead of structuring the project as an all-or-nothing |
| condition will materialize, and a consequence or impact | | | | proposition, perhaps it can be |
| on the project if the condition does materialize."Risk | | | | implemented so that parts or stages of it can be |
| management is the process of identifying, analyzing, | | | | adapted to many different environments. |
| and addressing project risks proactively to maximize | | | | Perhaps the data structures and encoding can be |
| positive consequences (opportunities) and minimize | | | | separated from the database implementation |
| negative consequences (losses). Risks are addressed | | | | so that if organizational changes arise that undermine |
| by formulating mitigation plans, which are aimed at | | | | the implementation, the data structures can |
| reducing the likelihood that the condition will | | | | still be used in the implementation ultimately adopted |
| materialize, and contingency plans, which are aimed at | | | | by the organization. If a third of the work can |
| addressing the condition when it does materialize.As | | | | be salvaged, the value of the project is increased by |
| mentioned above, the value of a project is | | | | $2,640 ($8,000 x .33).This brings the total increase in |
| determined by its net return and its risks. The net | | | | return as a result of risk management to |
| return on the project is equal to the present value of | | | | $9,640.After risk management, the value of the |
| the project minus the costs (return = present value - | | | | project is $14,640 ($5,000 return after risk |
| costs). This return assumes that the project will | | | | assessment |
| proceed as planned and budgeted - that is, it | | | | + total increase in return after risk |
| assumes a risk-free project. But projects are rarely | | | | management).Conclusion:The true value of a project |
| risk-free. To get a true assessment of the project, | | | | cannot be evaluated without being realistic about the |
| the return must be evaluated against the | | | | costs of the undertaking, including the risks. Risks |
| risks.Applying Risk Management:Suppose I have a | | | | that are simply acknowledged and built into the costs |
| project proposal to unify two corporate databases. I | | | | will always lessen the value of a project, motivating |
| estimate that this will save the organization $100,000 | | | | project managers to report overly optimistic |
| over five years and that it will cost $80,000 to | | | | outlooks, which undermines the very reason for |
| implement. The return is $20,000 without factoring in | | | | considering risks. But if risks are actively managed by |
| any risks, but there are risks.1. Due to some | | | | meeting them head-on, formulating mitigation and |
| uncertainty in the requirements, there is a 50% | | | | contingency plans and treating risk management as |
| likelihood that the development effort will cost an | | | | an ongoing process, risks can be minimized. As a |
| additional $10,000. This comes to a reduction of the | | | | result, project values can be increased, and |
| return by $5,000 ($10,000 x .50).2. Although the | | | | organizations will get a more accurate and consistent |
| project team has assurance from sales that the | | | | understanding of project values.About Ralph |
| impact upon the sales force will not be substantial, | | | | Dandrea:Ralph Dandrea is the President of ITX Corp., |
| the team believes that there is still a 25% likelihood | | | | and leads its Business Performance practice. He is |
| that upon seeing the changes, sales will require | | | | experienced in business and information technology |
| additional training, costing $8,000, thereby reducing | | | | management and holds graduate degrees in business |
| the return by $2,000 ($8,000 x 25).3. Due to some | | | | and law. ITX(R):ITX Corp is a business consulting and |
| inherent uncertainties regarding the technologies, as | | | | technology solutions firm focused in eight practice |
| well as the direction of the organization and some | | | | areas including Business Performance, Internet |
| anticipated acquisitions, there is a 10% likelihood that | | | | Marketing, IT Staffing, IT Solution Strategies, IT |
| the entire project will fail or be superseded by other | | | | Solutions Implementation, Technical Services, Internet |
| efforts. This means a reduction of the return by | | | | Services, and Technology Research.To learn more |
| $8,000 ($80,000 in overall project costs x .10).When | | | | about what ITX can do for you visit our website at |
| all risks are factored, the reduction on the return is | | | | or contact us at (800) 600-7785. |