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Risk Analysis and Management
Look Out!!
If you don't actively attack the risks, they will actively attack you.
-Tom Gilb
Risk Definitions
• Risk is the potential for realization of unwanted negative consequences of an event.
[Rowe, William D. An Anatomy of Risk 1988]
• Risk is the measure of the probability and severity of adverse effects.
[Lowrance, William W. Of Acceptable Risk 1976]
• Risk is the possibility of suffering loss, injury, disadvantage, or destruction.
[Webster's Third New International Dictionary 1981]
Risk Characteristics
• uncertainty - an risk may or may not happen
• loss - an risk has unwanted consequences or losses
What is Risk Management?
Making informed decisions by consciously assessing what can go wrong and the severity of its impact.
A comprehensive risk management strategy, as part of total quality management approach, aims at anticipating and eliminating all the causes of risk
Why Do Risk Management
– Eliminate surprises
– Anticipate issues - prevent problems
– Begin programs on the "right" foot and stay on track
– Reach business goals
MIS Risks
80
65
60
55
50
Creeping user requirements
Excessive schedule pressure
Low quality
Cost overruns
Inadequate conf. Control
System Software Risks
70
65
60
50
35
Long schedules
Inadequate cost estimation
Excessive paperwork
Error-prone modules
Cancelled projects
Commercial Software Risks
70
55
50
45
30
Inadequate user documentation
Low user satisfaction
Excessive time to market
Harmful competitive actions
Litigation expense
Defense Software Risks
90
85
75
70
45
Excessive paperwork
Low productivity
Long schedules
Creeping user requirements
Unusable software
Contract Software Risks
60
50
45
30
20
High maintenance costs
Contractor Vs client friction
Creeping user requirements
Legal ownershipUnanticipated acceptance criteria
End-user Software Risks
80
65
60
50
20
Non-transferable applications
Hidden errors
Unmaintainable software
Redundant applications
Legal ownership
Risk Analysis
– Risk Identification
– Risk Projection
– Risk Assessment
– Risk Management
Risk Identification
– Project Risks
– Technical Risks
– Business Risks
Project Risks
– Potential budgetary, schedule, personnel, resources, customer and requirements problems and their impact.
– Project complexity, size and structural uncertainty are determining factors.
Technical Risks
– Potential design, implementation, interfacing, verification and maintenance problems.
– Specification ambiguity, technical uncertainty, technical obsolescence and ``leading edge'' technology.
Business Risks
Market Risk : building a product that no one really wants.
Product Risks: building a product that no longer fits into the overall product strategy for the company.building a product that the sales force doesn't understand how to sell.
Management Risk: losing the support of senior management due to a change in focus or people.
Budget Risk: losing budgetary or personnel commitment.
Risk-item checklist
• Product size• Business impact• Customer characteristics• Process definition• Development environment• Technology to be built• Staff size and experience
Product size risks
• Estimated size of the product in LOC or FP?• Estimated size of product in number of programs, files,
and transactions?• Percentage of deviation in size of product from average
for previous products?• Size of database created or used by the product?• Number of users of the product?• Number of projected changes to the requirements for the
product?• Number of changes before delivery? After delivery?• Amount of reused software?
Business impact risks
• Effect of this product on company revenue?
• Visibility of this product by senior management?
• Reasonableness of delivery deadline?
• Number of customers who will use this product and the consistency of their needs relative to the product?
• Number of other products or systems with which this product must be interoperable?
• Sophistication of end users?
Business impact risks
• Amount and quality of product documentation that must be produced and delivered to the customer?
• Governmental regulatory constraints on the construction of the product?
• Costs associated with late delivery?
• Costs associated with a defective product?
Customer characteristics risks• Have you worked with the customer in the past?• Does the customer have a solid idea of what is required?
Will the customer agree to spend time in FAST meetings to identify project scope?
• Is the customer willing to establish rapid communication links with the developer?
• Is the customer willing to participate in reviews?• Is the customer technically sophisticated in the product
area?• Is the customer willing to let your people do their job that
is, will the customer resist looking over your shoulder during detailed technical work?
• Does the customer understand the SE process?
Process definition risks
• Does your senior management support a written policy statement that defines a process for software development?
• Are specific documentation formats defined?
• Are formal technical reviews of the SRS, design, test procedures and test cases and code conducted regularly?
• Is SCM used to maintain consistency among system / software requirements, design, code, and test cases?
Process definition risks
• Is more than 90 % of your code written in a high-order language?
• Are software tools used to support planning and tracking activities?
• Are CASE tools used to support the software analysis and design process, prototyping, test support, documentation?
• Are quality and productivity metrics collected for all software projects?
Technology risks
• Is the technology to be built new to your organization?• Do the customer’s requirements demand the creation of
new algorithms or input or output technology?• Does the software interface with new or unproven
hardware?• Does the software to be built interface with vendor-
supplied software products that are unproven?• Does the software to be built interface with a database
system whose function and performance have not been proved in this application area?
• Is a specialized user interface demanded by product requirements?
Technology risks• Do requirements for the product demand the creation of
program components that are unlike any previously developed by your organization? What percentage of components are new?
• Do requirements demand the use of new analysis, design, or testing methods?
• Do requirements demand the use of unconventional software development methods, such as formal methods, AI (artificial intelligence)-based approaches, or artificial neural networks?
• Do requirements put excessive performance constraints on the product?
• Is the customer uncertain that the functionality requested is “doable”?
Checklist for staffing risk
• Are the best people available? • Are enough (too many) people available? • Do the people have the right combination of
skills? • Have staff members received the necessary
training? • Is the staff committed for the entire project
duration? • Will some staff members only be part time? • Will staff turnover be low enough for continuity?
Risk Projection (Estimation)
Attempts to rate each risk in two ways:
– Likelihood that the risk is real.
– Consequences of the problems associated with the risk, should it occur.
Risk projection activities
• Establishing a scale that reflects the perceived likelihood of a risk: Boolean, qualitative, quantitative
• Delineating the consequences of a risk.
• Establishing the impact of the risk on the project and the product.
• Noting the overall accuracy of the risk projection.
Probability Quantification
impossible toimprobable
probable frequent value
Prob. value (0, 0.4) (0.4, 0.7) (0.7, 1)Performance ------------- -------------Cost ------------- -------------Schedule ------------- -------------support ------------- -------------
Risk Drivers
Performance Cost Schedule support
Requirements Requirements Resources Design
Constraints Personnel Need dates Responsibilities
Technology Reusable SW Technology Tools, env
Dev. approach Tools, env Requirements Supportability
Impact Assessment
Performance Cost Schedule support
Catastrophic
Critical
Marginal
negligible
Risk Assessment
frequent probable improbable impossible
Prob. value (0.7, 1) (0.4, 0.7) (0, 0.4) 0
catastrophic
critical
marginal
negligible
HIGH
MODERATE
LOW
NONE
Factors affecting Impact
Risks are weighted by perceived impact and then prioritized. Three factors affect impact:
• The nature of the risk indicates the problems that are likely if it occurs.
• The scope of a risk combines its severity with its overall distribution.
• The timing of a risk determines when and for how long the impact will be felt.
The importance of risk impact and probability is linked to their effect on management concerns.
Risk Assessment
Risks can be represented as a set of triplets of the form: [r,l,x] where
– r is risk
– l is the likelihood (probability) of the risk
– x is the impact of the risk.
Risk Assessment
During risk assessment the following actions occur:
– An examination of the accuracy of the estimates made during risk projection.
– A prioritization of the risks that have been uncovered.
– A preliminary examination of the ways to control and/or avert likely risks.
Risk Referent Level
• At a certain level of risk, or a combination of risks, a project will have to be terminated.
• A risk referent level has a single point, called the referent or break point, at which time the decision to proceed or terminate are equally acceptable.
• Cost, schedule, support and performance represent typical risk referent levels.
Risk Referent Level
Projected cost overrun
Pro
ject
ed s
ched
ule
over
run
Referent point
High risk area
Risk Assessment Checklist
• Define the risk referent levels for the project. Referents are stated as a probability of failure or the probability of success level for each individual risk or the system as a whole.
• A value should be agreed upon where it is decided that a project should not continue.
The system risk referent can be:
• an aggregate of individual risks, or one or more prioritized high impact risks
• Attempt to develop a relationship between each [r,l,x] and each of the referent levels.
• Predict the set of referent points that define a region of termination, bounded by a curve or areas of uncertainty.
• Try to predict how compound combinations of risks will affect a referent level.
Risk Evaluation Outcomes
Comparing the evaluated risk against its risk referent has three possible outcomes:
1.Acceptable : the evaluated risk is less than the referent.
2.Impossible : the evaluated risk is much greater than the referent.
3.Infeasible : the evaluated risk is greater than, but almost equal to, the referent.
Seven-stage Hierarchy
1. Crisis management
2. Fix on failure
3. Mitigation
4. Prevention
5. Elimination of root causes
6.Anticipation
7. Management of change7. Management of change
SEI Risk Management Paradigm
RMMP Outline
I. Introduction
II. Risk analysis
III. Risk management
IV. Appendixes
RMMP - Introduction
A. Scope and purpose of document
B. Overview
1. Objectives, 2. Risk aversion priorities
C. Organization
1. Management, 2. Responsibilities, 3. Job descriptions
D. Aversion program description1. Schedule, 2. Major milestones and reviews, 3. Budget
RMMP - Risk analysis
A. Identification1. Survey or risks, a. Sources of risk, 2. Risk taxonomy
B. Risk estimation1. Estimate probability of risk, 2. Estimate consequence of risk, 3. Estimation criteria, 4. Possible sources of estimation error
C. Evaluation1. Evaluation methods to be used, 2. Method assumptions and limitations, 3. Risk referents, 4. Results
RMMP - Risk management
A. RecommendationsB. Risk aversion optionsC. Risk aversion recommendationsD. Risk monitoring procedures
IV. Appendixes
A. Risk estimate of the situationB. Risk abatement plan