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How Much Risk Is Too Much Risk? Boston SPIN January 20 th 2004 Tim Lister lister@acm.org The Atlantic Systems Guild, Inc. WHATS IT ALL ABOUT, ALFIE? WHATS IT ALL ABOUT, ALFIE? WHATS IT ALL ABOUT, ALFIE? WHATS IT ALL ABOUT, ALFIE?

  1. How Much Risk Is Too Much Risk? Boston SPIN January 20 th 2004 Tim Lister lister@acm.org The Atlantic Systems Guild, Inc.

  2. WHAT’S IT ALL ABOUT, ALFIE? WHAT’S IT ALL ABOUT, ALFIE? WHAT’S IT ALL ABOUT, ALFIE? WHAT’S IT ALL ABOUT, ALFIE? WHAT’S IT ALL ABOUT, ALFIE? “The purpose of risk management is to make decisions, not to sit around and admire the risks.” – Rockwell Collins Risk Management Guide

  3. “BUT WE CAN’T POSSIBLY MAKE “BUT WE CAN’T POSSIBLY MAKE “BUT WE CAN’T POSSIBLY MAKE “BUT WE CAN’T POSSIBLY MAKE “BUT WE CAN’T POSSIBLY MAKE THESE DECISIONS . . .” THESE DECISIONS . . .” THESE DECISIONS . . .” THESE DECISIONS . . .” THESE DECISIONS . . .” “The winning general is the one who can best act on imperfect information and half formed theories.” – Napoleon Bonaparte

  4. 4. RISK MANAGEMENT: 4. RISK MANAGEMENT: 4. RISK MANAGEMENT: 4. RISK MANAGEMENT: 4. RISK MANAGEMENT: WORLD’S SHORTEST TUTORIAL WORLD’S SHORTEST TUTORIAL WORLD’S SHORTEST TUTORIAL WORLD’S SHORTEST TUTORIAL WORLD’S SHORTEST TUTORIAL Avoiding the obvious Explicitly declared uncertainty Tools of risk management Risk and value A test: Did we really do risk management?

  5. RISK MANAGEMENT ATROCITIES RISK MANAGEMENT ATROCITIES RISK MANAGEMENT ATROCITIES RISK MANAGEMENT ATROCITIES RISK MANAGEMENT ATROCITIES You’re blind-sided by a risk that’s happened a thousand times before. You have no infrastructure in place to deal with a risk when it materializes. You don’t have a useful (early) transition indicator.

  6. DENVER INTERNATIONAL AIRPORT DENVER INTERNATIONAL AIRPORT DENVER INTERNATIONAL AIRPORT DENVER INTERNATIONAL AIRPORT DENVER INTERNATIONAL AIRPORT The automated baggage handling system:

  9. D.I.A. PROJECT: CRITICAL PATH D.I.A. PROJECT: CRITICAL PATH D.I.A. PROJECT: CRITICAL PATH D.I.A. PROJECT: CRITICAL PATH D.I.A. PROJECT: CRITICAL PATH 1993 1994 1995 Baggage Handling Software . . Integration testing . Acceptance & signoff Airport opening

  10. D.I.A. PROJECT: CRITICAL PATH D.I.A. PROJECT: CRITICAL PATH D.I.A. PROJECT: CRITICAL PATH D.I.A. PROJECT: CRITICAL PATH D.I.A. PROJECT: CRITICAL PATH 1993 1994 1995 Baggage Handling Software . . Integration testing . Acceptance & signoff Airport opening

  11. D.I.A. PROJECT: CRITICAL PATH D.I.A. PROJECT: CRITICAL PATH D.I.A. PROJECT: CRITICAL PATH D.I.A. PROJECT: CRITICAL PATH D.I.A. PROJECT: CRITICAL PATH 1993 1994 1995 Baggage Handling Software . . Integration testing . Acceptance & signoff Airport opening

  12. D.I.A. PROJECT: CRITICAL PATH D.I.A. PROJECT: CRITICAL PATH D.I.A. PROJECT: CRITICAL PATH D.I.A. PROJECT: CRITICAL PATH D.I.A. PROJECT: CRITICAL PATH 1993 1994 1995 Baggage Handling Software . . Integration testing . Acceptance & signoff Airport opening

  14. RISK MANAGEMENT ATROCITIES RISK MANAGEMENT ATROCITIES RISK MANAGEMENT ATROCITIES RISK MANAGEMENT ATROCITIES RISK MANAGEMENT ATROCITIES You’re blind-sided by a risk that’s happened a thousand times before. You have no infrastructure in place to deal with a risk when it materializes. You don’t have a useful (early) transition indicator.

  16. NOW AVAILABLE NOW AVAILABLE NOW AVAILABLE NOW AVAILABLE NOW AVAILABLE FROM HANSER: FROM HANSER: FROM HANSER: FROM HANSER: FROM HANSER: www.hanser.de/computer/neu.htm

  19. 1. You have zero chance of delivering before January of next year. 2. My best guess is you’ll be done around April 1st . . . 3. but to be at least 50% sure, you’d better advertise a date of May 1 or later. 4. To be 100% safe, you’d have to allow for delivery as late as end of next year.

  23. RISK DIAGRAM: RISK DIAGRAM: RISK DIAGRAM: RISK DIAGRAM: RISK DIAGRAM: A risk diagram shows explicitly how uncertain we are about delivery date (or anything else).

  24. RISK DIAGRAM: RISK DIAGRAM: RISK DIAGRAM: RISK DIAGRAM: RISK DIAGRAM: RISK DIAGRAM: RISK DIAGRAM: RISK DIAGRAM: RISK DIAGRAM: RISK DIAGRAM: A risk diagram shows explicitly how uncertain we are about delivery date (or anything else).

  25. RISK DIAGRAM: RISK DIAGRAM: RISK DIAGRAM: RISK DIAGRAM: RISK DIAGRAM: RISK DIAGRAM: RISK DIAGRAM: RISK DIAGRAM: RISK DIAGRAM: RISK DIAGRAM: A risk diagram shows explicitly how uncertain we are about delivery date (or anything else).

  26. RISK DIAGRAM: RISK DIAGRAM: RISK DIAGRAM: RISK DIAGRAM: RISK DIAGRAM: RISK DIAGRAM: RISK DIAGRAM: RISK DIAGRAM: RISK DIAGRAM: RISK DIAGRAM: A risk diagram shows explicitly how uncertain we are about delivery date (or anything else).

  27. RISK DIAGRAMS IN USE: RISK DIAGRAMS IN USE: RISK DIAGRAMS IN USE: RISK DIAGRAMS IN USE: RISK DIAGRAMS IN USE: Size Inflation Productivity Variation Risk Modeling Sources of Process Delivery Date Uncertainty Resultant Uncertainty Flaw in size estimate etc.

  28. RISK DIAGRAMS IN USE: RISK DIAGRAMS IN USE: RISK DIAGRAMS IN USE: RISK DIAGRAMS IN USE: RISK DIAGRAMS IN USE: Size Inflation Productivity Variation Risk Modeling Sources of Process Delivery Date Uncertainty Resultant Uncertainty Flaw in size estimate etc.

  29. RISK DIAGRAMS IN USE: RISK DIAGRAMS IN USE: RISK DIAGRAMS IN USE: RISK DIAGRAMS IN USE: RISK DIAGRAMS IN USE: Size Inflation Productivity Variation Risk Modeling Sources of Process Delivery Date Uncertainty Resultant Uncertainty Flaw in size estimate etc.

  30. SENSIBLE PROJECT MANAGEMENT: SENSIBLE PROJECT MANAGEMENT: SENSIBLE PROJECT MANAGEMENT: SENSIBLE PROJECT MANAGEMENT: SENSIBLE PROJECT MANAGEMENT: Effort Size in (for example) Function Points

  31. SENSIBLE PROJECT MANAGEMENT: SENSIBLE PROJECT MANAGEMENT: SENSIBLE PROJECT MANAGEMENT: SENSIBLE PROJECT MANAGEMENT: SENSIBLE PROJECT MANAGEMENT: Effort 20,000 FP Size in (for example) Function Points

  32. SENSIBLE PROJECT MANAGEMENT: SENSIBLE PROJECT MANAGEMENT: SENSIBLE PROJECT MANAGEMENT: SENSIBLE PROJECT MANAGEMENT: SENSIBLE PROJECT MANAGEMENT: Effort 52 person months 20,000 FP Size in (for example) Function Points

  33. SENSIBLE PROJECT MANAGEMENT: SENSIBLE PROJECT MANAGEMENT: SENSIBLE PROJECT MANAGEMENT: SENSIBLE PROJECT MANAGEMENT: SENSIBLE PROJECT MANAGEMENT: Effort “The project will require 52 person-months of effort.” 52 person months 20,000 FP Size in (for example) Function Points

  34. SENSIBLE PROJECT MANAGEMENT: SENSIBLE PROJECT MANAGEMENT: SENSIBLE PROJECT MANAGEMENT: SENSIBLE PROJECT MANAGEMENT: SENSIBLE PROJECT MANAGEMENT: Effort 52 person months 20,000 FP Size in (for example) Function Points

  35. SENSIBLE RISK MANAGEMENT: SENSIBLE RISK MANAGEMENT: SENSIBLE RISK MANAGEMENT: SENSIBLE RISK MANAGEMENT: SENSIBLE RISK MANAGEMENT: Effort 52 person months 20,000 FP Size in (for example) Function Points

  36. SENSIBLE RISK MANAGEMENT: SENSIBLE RISK MANAGEMENT: SENSIBLE RISK MANAGEMENT: SENSIBLE RISK MANAGEMENT: SENSIBLE RISK MANAGEMENT: “The project will take this much effort.” 9/2000 Effort (Person Months) 40 52 70 Delivery Date 6/2000 11/2000

  37. SENSIBLE RISK MANAGEMENT: SENSIBLE RISK MANAGEMENT: SENSIBLE RISK MANAGEMENT: SENSIBLE RISK MANAGEMENT: SENSIBLE RISK MANAGEMENT: “The project will take this much time.” 9/2000 Effort (Person Months) 40 52 70 Delivery Date 6/2000 11/2000

  39. How much risk is too much risk?

  40. INSIGHTS: INSIGHTS: INSIGHTS: INSIGHTS: INSIGHTS: surprise about where the major risks lie surprise about the value of low risk projects surprise about risk quantification surprise about precision surprise about aggressively scheduled projects

  41. WHERE IS THE BIGGEST RISK? WHERE IS THE BIGGEST RISK? WHERE IS THE BIGGEST RISK? WHERE IS THE BIGGEST RISK? WHERE IS THE BIGGEST RISK?

  42. WHERE IS THE BIGGEST RISK? WHERE IS THE BIGGEST RISK? WHERE IS THE BIGGEST RISK? WHERE IS THE BIGGEST RISK? WHERE IS THE BIGGEST RISK?

  43. WHERE IS THE BIGGEST RISK? WHERE IS THE BIGGEST RISK? WHERE IS THE BIGGEST RISK? WHERE IS THE BIGGEST RISK? WHERE IS THE BIGGEST RISK?

  44. THE FIRST SURPRISE: THE FIRST SURPRISE: THE FIRST SURPRISE: THE FIRST SURPRISE: THE FIRST SURPRISE: The biggest risk an organization faces is lost opportunity, the failure to choose the right projects.

  45. THE FIRST SURPRISE: THE FIRST SURPRISE: THE FIRST SURPRISE: THE FIRST SURPRISE: THE FIRST SURPRISE: The biggest risk an organization faces is lost opportunity, the failure to choose the right projects. So . . . Value is every bit as important as cost (the plusses matter as much as the minuses).

  46. THE FIRST SURPRISE: THE FIRST SURPRISE: THE FIRST SURPRISE: THE FIRST SURPRISE: THE FIRST SURPRISE: The biggest risk an organization faces is lost opportunity, the failure to choose the right projects. So . . . Value is every bit as important as cost (the plusses matter as much as the minuses). Your process for deciding which projects to do is more important than your process for how to do them.

  47. THE KEY PROJECT NEGOTIATION: THE KEY PROJECT NEGOTIATION: THE KEY PROJECT NEGOTIATION: THE KEY PROJECT NEGOTIATION: THE KEY PROJECT NEGOTIATION:

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