Sources Of Risk

1. The IT Outsourcing Risks: Sources Of Risk

2. Software Development Problems • Range of Intervention Theory • Prevention, Treatment and Maintenance • Planning, Development and Use • Cost of Intervention

3. The Importance of Risk Management • Risk management is the art and science of identifying, analyzing, and responding to risk throughout the life of a project and in the best interests of meeting project objectives. • Risk management is often overlooked in projects, but it can help improve project success by helping select good projects, determining project scope, and developing realistic estimates.

4. Benefits from Software Risk Management Practices* *Kulik, Peter and Catherine Weber, “Software Risk Management Practices – 2001,” KLCI Research Group (August 2001).

5. Project Risk Management Processes • Risk management planning: Deciding how to approach and plan the risk management activities for the project. • Risk identification: Determining which risks are likely to affect a project and documenting the characteristics of each. • Qualitative risk analysis: Prioritizing risks based on their probability and impact of occurrence.

6. Project Risk Management Processes (cont’d) • Quantitative risk analysis: Numerically estimating the effects of risks on project objectives. • Risk response planning:Taking steps to enhance opportunities and reduce threats to meeting project objectives. • Risk monitoring and control: Monitoring identified and residual risks, identifying new risks, carrying out risk response plans, and evaluating the effectiveness of risk strategies throughout the life of the project.

7. Risk Management Planning • The main output of risk management planning is a risk management plan—a plan that documents the procedures for managing risk throughout a project. • The project team should review project documents and understand the organization’s and the sponsor’s approaches to risk. • The level of detail will vary with the needs of the project.

8. Table 11-2. Topics Addressed in a Risk Management Plan • Methodology • Roles and responsibilities • Budget and schedule • Risk categories • Risk probability and impact • Risk documentation

9. Contingency and Fallback Plans, Contingency Reserves • Contingency plans are predefined actions that the project team will take if an identified risk event occurs. • Fallback plans are developed for risks that have a high impact on meeting project objectives, and are put into effect if attempts to reduce the risk are not effective. • Contingency reserves or allowances are provisions held by the project sponsor or organization to reduce the risk of cost or schedule overruns to an acceptable level.

10. Common risk factors for IT Projects • Risk factors • Lack of top management commitment to the project • Failure to gain user commitment • Misunderstanding the requirement • Lack of adequate user involvement • Failure to manage end user expectation • Changing scope and objectives • Lack of required knowledge/skill in the project personnel • New technology • Insufficient / inappropriate staffing • Conflict between user departments

11. Information Technology Success Potential Scoring Sheet

12. Broad Categories of Risk • Market risk • Financial risk • Technology risk • People risk • Structure/process risk

13. Risk Breakdown Structure • A risk breakdown structure is a hierarchy of potential risk categories for a project. • Similar to a work breakdown structure but used to identify and categorize risks.

14. Figure 11-3. Sample Risk Breakdown Structure

15. Risk Identification • Risk identification is the process of understanding what potential events might hurt or enhance a particular project. • Risk identification tools and techniques include: • Brainstorming • Interviewing • SWOT analysis

16. Brainstorming • Brainstorming is a technique by which a group attempts to generate ideas or find a solution for a specific problem by amassing ideas spontaneously and without judgment. • An experienced facilitator should run the brainstorming session. • Be careful not to overuse or misuse brainstorming.

17. Interviewing • Interviewing is a fact-finding technique for collecting information in face-to-face, phone, e-mail, or instant-messaging discussions. • Interviewing people with similar project experience is an important tool for identifying potential risks.

18. SWOT Analysis • SWOT analysis (strengths, weaknesses, opportunities, and threats) can also be used during risk identification. • Helps identify the broad negative and positive risks that apply to a project.

19. Risk Register • The main output of the risk identification process is a list of identified risks and other information needed to begin creating a risk register. • A risk register is: • A document that contains the results of various risk management processes and that is often displayed in a table or spreadsheet format. • A tool for documenting potential risk events and related information. • Risk events refer to specific, uncertain events that may occur to the detriment or enhancement of the project.

20. Risk Register Contents • An identification number for each risk event. • A rank for each risk event. • The name of each risk event. • A description of each risk event. • The category under which each risk event falls. • The root cause of each risk.

21. Risk Register Contents (cont’d) • Triggers for each risk; triggers are indicators or symptoms of actual risk events. • Potential responses to each risk. • The risk owner or person who will own or take responsibility for each risk. • The probability and impact of each risk occurring. • The status of each risk.

22. Table 11-5. Sample Risk Register/Risk Analysis • Project severity = expectation (1-10) * impact (1-10) • When should risk analysis be formed? • Is not a time activity • Periodic update and reviewed

23. Calculating severity Project severity = expectation (1-10) * impact (1-10)

24. Major Risks Come From Management Practices….. • Poor analysis of supplier strategy and capabilities • IT treated as undifferentiated commodity • Cash injection looked for rather than business advantage • Incomplete contracting • Difficulties constructing/adapting deals for • business/technological change • Poor sourcing/contracting for new technologies • Lack of maturity/experience with long-term ‘total’ outsourcing • Failure to retain requisite capabilities/skills for active • contract and relationship management • Power asymmetries developing in favour of vendor • Unrealistic expectations with multiple objectives • (Source: Lacity & Willcocks, 2001)

25. Main Risks in Outsourcing Other Industrial relations with internal staff No Learning from vendor about IT Systems interconnectedness adversely affected Loss of control over strategic use of IT New IT expertise from vendor fails to materialise Loss of control over IT operations Lack of expertise in managing contracts Irreversibility of contract Credibility of vendor claims Hidden costs of contract Points

26. Risk Mitigations Plan • Learn from Experience • Follow a the maturity model. • Best Practice / Multi-sourcing approach • Know what to outsource • Use the frameworks from previous classes

27. Stages Performing / Strategic Focus (Not just focusing on cost) 5 4 3 2 1 Norming / Proactive Cost Focus (Beginning to form norms and actively focusing and proactively using outsourcing for cost saving including offshore. Outsourcing 20-40% of IT activities) Storming / Strategic decision point (Organization leaders share conflicting ideas about outsourcing and pursuing different strategy to provide IT services) Forming / experimenting stage (outsourcing between 10-20% of IT activities) Insourcing / Bystander (outsourcing between 1-5% of IT. Mostly purchasing of IT functions). Time

28. Risk Mitigations Plan • Outsourcing: Type and Scope • Best-in-class • In case of multi-sourcing • Ability of suppliers to work together • Short term deals better than long term deals

29. Vendor Selection Criteria and Process • Check Xerox and General Dynamics case studies • Best fit • Ability

30. …And Unrealistic Expectations: The IT Cost/Service Trade-off Minimal Cost Premium Cost Premium Service Minimal Service ‘Superstar’ Senior management’s and users’ expectations of IT ‘Rolls Royce’ Realm of feasible IT performance ‘Black Hole’ ‘Chevrolet’ Senior management’s and users’ perceptions of IT Realm of feasible IT performance