A Portfolio Approach to IT Projects

Chapter 10

Project Risk

• Consequences of Risk:– Failure to obtain all, or any, of the anticipated

benefits because of implementation difficulties.

– Higher than expected implementation costs.– Longer than expected implementation time.– Resulting systems whose technical

performance is significantly below estimate.– System incompatibility with selected hardware

and software.

Project Dimensions Influencing Inherent Implementation Risk

Three important project dimensions influence inherent implementation risk:

• Project size

• Experience with the Technology

• Project structure

Project Categories and Degree of Risk

Low risk (very susceptible to mismanagement)

Low risk

Very low risk (very susceptible to mismanagement)

Very low risk

Very high risk Medium risk

High risk Medium-low risk

Low Structure High Structure

LargeProject

SmallProject

LargeProject

SmallProject

Low company-relative technology

High company-relative technology

Project Examples by Implementation Risk Categories

Spread support for budgeting

Manufacturing inventory control

On-line graphic support for advertising copy

Expert system bond trading

Low Structure High Structure

Low company-relative technology

High company-relative technology

Assessing Risk of Individual Projects

• Managers should ask themselves:– Are the benefits enough to offset the risk?– Can the affected parts of the organization

survive if the project fails?– Have the planners considered appropriate

alternatives?

Assessing Risk of Individual ProjectsSize Risk Assessment

Risk Factor Weight

1. Total development work-hours for system100 to 3,000

3,000 to 15,000

15,000 to 30,000

More than 30,000

2. Estimated project implementation time12 months or less

13 months to 24 months

More than 24 months

3. Number of departments involved with system

One

Two

Three or more

Low

Medium

Medium

High

Low

Medium

High

Low

Medium

High

1

2

3

4

1

2

3

1

2

3

5

4

4

Structure Risk Assessment Risk Factor Weight

1. If replacement system is proposed, what % of existing functions are replaced on a one-to-one basis?

0% to 25%

25% to 50%

50% to 100%

2. What is the severity of user-department procedural changes caused by the proposed system?

Low

Medium

High

3. What is the degree of needed user-organization structural change to meet requirements of the new system?

None

Minimal

Somewhat

Major

High

Medium

Low

Low

Medium

High

3

2

1

1

2

3

0

1

2

3

5

5

5

Structure Risk Assessment - Contd.Risk Factor Weight

4. What is the general attitude of the user?

Poor; against IT solution

Fair; sometimes reluctant

Good; understands value of IT solution

5. How committed is upper-level user management to the system?

Somewhat reluctant, or unknown

Adequate

Extremely enthusiastic

6. Has a joint IT-user team been established?

No

Part-time user representative appointed

Full-time user representative appointed

High

Medium

High

Medium

Low

High

Low

3

2

0

3

2

1

3

1

0

5

5

5

Technology Risk Assessment Risk Factor Weight

1. Which of the hardware is new to the company?

None

CPU

Peripheral and / or additional storage

Terminals

Mini or Macro

2. Is the system software (non operating system) new to IT project team?

No

Programming language

Database

Data communications

Other (please specify)

3. How knowledgeable is user in are of IT?

First exposure

Previous exposure but limited knowledge

High degree of capability

High

High

High

High

High

High

High

High

High

Medium

Low

0

3

3

3

3

0

3

3

3

3

3

2

1

5

5

5

Technology Risk Assessment - Contd.

Risk Factor Weight

4. How knowledgeable is user representative in proposed application area?

Limited

Understands concept but has no experience

Has been involved in prior implementation efforts

5. How knowledgeable is IT team in proposed application area?

Limited

Understands concept but has no experience

Has been involved in prior implementation efforts

High

Medium

Low

High

Medium

Low

3

2

1

3

2

1

5

5

Portfolio RiskPortfolio Risk Focus

Factor Low HighStability of IT development group. High Low

Perceived quality of IT development group by insiders. High Low

IT critical to delivery of current corporate services. No Yes

IT important decision support aid. No Yes

Experienced IT systems development group. Yes No

Major IT fiascoes in last two years. No Yes

New IT management team. No Yes

IT perceived critical to delivery of future corporate services.

No Yes

IT perceived critical to future decision support aids.

Company perceived as backward in use of IT. No Yes

Project Management: A Contingency Approach

• Management Tools:– External integration tools– Internal integration tools– Formal planning tools– Formal results-control

• Results controls have particularly effective in the following settings.

– Clear knowledge in advance of the desired results– The desired results can be controlled– Results can be measured effectively.

Tools of Project ManagementIntegration Tools, External Integration Tools, Internal

Selection of user as project manager.

User steering committee (which meets frequently).

User-managed change control process.

Distribution of project team information to key users.

Selection of users as team members.

User approval process for system specifications.

Prototyping with users.

Progress reports.

User involvement / responsibility in other key decisions and actions.

Selection of experienced IT professional to lead team.

Team meetings.

Distribution within team of information on key design decisions.

Technical status reviews / inspections.

Human resources techniques to maintain low turnover of team members.

Selection of high percentage of team members with significant previous work relationships.

Participation of team members in goal setting and deadline establishment.

Obtaining outside technical assistance.

Tools of Project Management – contd.

Formal Planning Tools Formal Control ToolsProject management software

PERT, CPM

Milestone selection.

Systems specification.

Project approval processes.

Post project audit procedures.

Status – versus – plan reports.

Change control disciplines and systems.

Milestone review meetings.

Analysis of deviations from plan.

Influences on Tool Selection

• High – Structure – Low – Technology projects.

• High – Structure – High – Technology projects.

• Low – Structure – Low – Technology projects.

• Low – Structure – High – Technology projects.

Relative Contribution of Tools to Ensuring Project Success by Project

TypeProject Type

Project Description

External Integration

Internal Integration

Formal Planning

Formal Results Control

I High structure – Low technology, large

Low Medium High High

II High structure – Low technology, small

Low Low Medium High

III High structure – Low technology, large

Low High Medium Medium

IV High structure – Low technology, small

Low High Low Low

Relative Contribution of Tools to Ensuring Project Success by Project

Type – Contd.Project Type

Project Description

External Integration

Internal Integration

Formal Planning

Formal Results Control

V Low Structure – Low technology, large

High Medium High High

VI Low Structure – Low technology, small

High Low Medium High

VII Low structure – High technology, large

High High Low+ Low+

VIII Low structure – High technology, small

High High Low Low

Emergence of Adaptive Project Management Methods

• Phases in Software Development Life Cycles– Analysis and Design– Construction– Implementation– Operation and Maintenance

Adaptive Methodology

• Basic Characteristics:– Iterative– Rely on fast cycles and require frequent delivery

(incremental)– Customer feedback– Skilled project staff capable of learning and making

midcourse adjustments in the middle of deployment.– Emphasize on “buying information” about outcomes

as a legitimate expenditure rather than as an investment with predictable outcomes.

A Minimalist Approach to Process Formalization

• Flow

• Completeness

• Visibility