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Answer Upon - Increasing Project Value through Risk Management
The other day I was sifting through about 1000 business cards I've collected over the years. I noticed a few things that frustrated me:1. No email address. Come on. It's 2007. People aren't going to look online for your email, or worse yet, guess what your email is.2. Mismatched email. You have a website, yet your email is mike233@aol.com. Where's the consistency? Furthermore, using AOL, Hotmail or Yahoo takes your level of professionalism down a few clicks.3. Tiny print. I'm only 27 and my eyes hurt looking at some of these cards. Remember, there's two sides. S-P-A-C-E---I-T---O-U-T!4. TMI. Too much information. (That's what websites are for!) Pick
When all risks are factored, the reduction on the return is $5,000 + $2,000 + $8,000 or $15,000. The return is now $20,000 - $15,000 or $5,000, making the project substantially less attractive than it originally appeared. But by managing the risks, the value of this project can be increased to a level that again makes it attractive.
1. First, the requirements could be tightened by first developing a proof-of-concept or simply by delaying the project until the uncertainties can be eliminated. By taking this approach, the value of the project can be increased by eliminating the $5,000 reduction for the risk of
The name tag supply industry is very and is driven by volume. The industry is composed of products like tags, badges and other accessories, and is targeted for meetings and event planners and employers of large organizations.The supplies industry has gone hi-tech with an on-line presence and computer based design for artwork and graphics. Name tags are used to identify attendees at conferences, meetings and tradeshows for safety, communication and networking purposes. It is used in organizations to identify employees and visitors. In hi-tech industries where confidentiality is very important, name tags are used to track unauthorized visitors. For example, name tags used for visitors show an expiration date tha
It may be time to stop thinking of risk assessment as the killjoy exercise which drains the enthusiasm from your project and to start thinking of it as a tool for enhancing your project's value.
Understanding the Fundamentals:
A project risk is any problem that could cause some loss or threaten the success of the project1. Risks differ from issues because they refer to the future or to the potential for adverse outcome.
“A risk consists of a condition which is not currently true, the likelihood that the condition will materialize, and a consequence or impact on the project if the condition does materialize.”
Risk management is the process of identifying, analyzing, and addressing project risks proactively to maximize positive consequences (opportunities) and minimize negative consequences (losses). Risks are addressed by formulating mitigation plans, which are aimed at reducing the likelihood that the condition will materialize, and contingency plans, which are aimed at addressing the condition when it does materialize.
As mentioned above, the value of a project is determined by its net return and its risks. The net return on the project is equal to the present value of the project minus the costs (return = present value - costs). This return assumes that the project will proceed as planned and budgeted - that is, it assumes a risk-free project. But projects are rarely risk-free. To get a true assessment of the project, the return must be evaluated against the risks.
Applying Risk Management:
Suppose I have a project proposal to unify two corporate databases. I estimate that this will save the organization $100,000 over five years and that it will cost $80,000 to implement. The return is $20,000 without factoring in any risks, but there are risks.
1. Due to some uncertainty in the requirements, there is a 50% likelihood that the development effort will cost an additional $10,000. This comes to a reduction of the return by $5,000 ($10,000 x .50).
2. Although the project team has assurance from sales that the impact upon the sales force will not be substantial, the team believes that there is still a 25% likelihood that upon seeing the changes, sales will require additional training, costing $8,000, thereby reducing the return by $2,000 ($8,000 x 25).
3. Due to some inherent uncertainties regarding the technologies, as well as the direction of the organization and some anticipated acquisitions, there is a 10% likelihood that the entire project will fail or be superseded by other efforts. This means a reduction of the return by $8,000 ($80,000 in overall project costs x .10).
When all risks are factored, the reduction on the return is $5,000 + $2,000 + $8,000 or $15,000. The return is now $20,000 - $15,000 or $5,000, making the project substantially less attractive than it originally appeared. But by managing the risks, the value of this project can be increased to a level that again makes it attractive.
1. First, the requirements could be tightened by first developing a proof-of-concept or simply by delaying the project until the uncertainties can be eliminated. By taking this approach, the value of the project can be increased by eliminating the $5,000 reduction for the risk of u
Many office-based workers do not realise that the environment they spend a majority of their working week in, may not be good for their health.Have you ever experienced headaches, respiratory infections, asthma or fatigue? Do these ailments occur at work? What happens when you go on holiday or at the weekends, do they still occur or do they miraculously disappear?You’ll often find people’s desk drawers contain a variety of pills and potions to alleviate the ailments they experience at work.John’s StoryJohn commenced work in a large open plan office a few months ago. He had been promoted from Team Leader in another division to the Manager of this new department. Since that time he has been
A project risk is any problem that could cause some loss or threaten the success of the project1. Risks differ from issues because they refer to the future or to the potential for adverse outcome.
“A risk consists of a condition which is not currently true, the likelihood that the condition will materialize, and a consequence or impact on the project if the condition does materialize.”
Risk management is the process of identifying, analyzing, and addressing project risks proactively to maximize positive consequences (opportunities) and minimize negative consequences (losses). Risks are addressed by formulating mitigation plans, which are aimed at reducing the likelihood that the condition will materialize, and contingency plans, which are aimed at addressing the condition when it does materialize.
As mentioned above, the value of a project is determined by its net return and its risks. The net return on the project is equal to the present value of the project minus the costs (return = present value - costs). This return assumes that the project will proceed as planned and budgeted - that is, it assumes a risk-free project. But projects are rarely risk-free. To get a true assessment of the project, the return must be evaluated against the risks.
Applying Risk Management:
Suppose I have a project proposal to unify two corporate databases. I estimate that this will save the organization $100,000 over five years and that it will cost $80,000 to implement. The return is $20,000 without factoring in any risks, but there are risks.
1. Due to some uncertainty in the requirements, there is a 50% likelihood that the development effort will cost an additional $10,000. This comes to a reduction of the return by $5,000 ($10,000 x .50).
2. Although the project team has assurance from sales that the impact upon the sales force will not be substantial, the team believes that there is still a 25% likelihood that upon seeing the changes, sales will require additional training, costing $8,000, thereby reducing the return by $2,000 ($8,000 x 25).
3. Due to some inherent uncertainties regarding the technologies, as well as the direction of the organization and some anticipated acquisitions, there is a 10% likelihood that the entire project will fail or be superseded by other efforts. This means a reduction of the return by $8,000 ($80,000 in overall project costs x .10).
When all risks are factored, the reduction on the return is $5,000 + $2,000 + $8,000 or $15,000. The return is now $20,000 - $15,000 or $5,000, making the project substantially less attractive than it originally appeared. But by managing the risks, the value of this project can be increased to a level that again makes it attractive.
1. First, the requirements could be tightened by first developing a proof-of-concept or simply by delaying the project until the uncertainties can be eliminated. By taking this approach, the value of the project can be increased by eliminating the $5,000 reduction for the risk of
What could be better than shopping for free and getting to keep what you buy? If you love to shop and are willing to tell retailers what you think, mystery shopping might just be the job for you. What's mystery shopping, you ask? As the competition for the shopper dollar gets fierce, retailers all over the world are investing in improving the levels of product and service offering to their customer base. Surveys have shown that it is the consistency of the in-store customer experience that is important in maintaining customer loyalty, thus correlating directly to the performance of the business. It's simple, you have to keep your customers happy if you want to keep them coming back. <
As mentioned above, the value of a project is determined by its net return and its risks. The net return on the project is equal to the present value of the project minus the costs (return = present value - costs). This return assumes that the project will proceed as planned and budgeted - that is, it assumes a risk-free project. But projects are rarely risk-free. To get a true assessment of the project, the return must be evaluated against the risks.
Applying Risk Management:
Suppose I have a project proposal to unify two corporate databases. I estimate that this will save the organization $100,000 over five years and that it will cost $80,000 to implement. The return is $20,000 without factoring in any risks, but there are risks.
1. Due to some uncertainty in the requirements, there is a 50% likelihood that the development effort will cost an additional $10,000. This comes to a reduction of the return by $5,000 ($10,000 x .50).
2. Although the project team has assurance from sales that the impact upon the sales force will not be substantial, the team believes that there is still a 25% likelihood that upon seeing the changes, sales will require additional training, costing $8,000, thereby reducing the return by $2,000 ($8,000 x 25).
3. Due to some inherent uncertainties regarding the technologies, as well as the direction of the organization and some anticipated acquisitions, there is a 10% likelihood that the entire project will fail or be superseded by other efforts. This means a reduction of the return by $8,000 ($80,000 in overall project costs x .10).
When all risks are factored, the reduction on the return is $5,000 + $2,000 + $8,000 or $15,000. The return is now $20,000 - $15,000 or $5,000, making the project substantially less attractive than it originally appeared. But by managing the risks, the value of this project can be increased to a level that again makes it attractive.
1. First, the requirements could be tightened by first developing a proof-of-concept or simply by delaying the project until the uncertainties can be eliminated. By taking this approach, the value of the project can be increased by eliminating the $5,000 reduction for the risk of
Entrepreneurs are often told to be flexible in their approach to business, but often it is imperative that you are NOT flexible. Here’s a few examples.When it pays NOT to be flexible. Prices: Keep your standard prices at the same levels for several months. This makes your offers much more believable. Customer Contact: Always personalize contact with your customers. Obviously when you have many customers much of your documentation is standard. But you must always add personal items such as their name, what they last bought from you and when. This makes your customer feel wanted and individually looked after. Marketing Material: You should ensure that your pr
1. Due to some uncertainty in the requirements, there is a 50% likelihood that the development effort will cost an additional $10,000. This comes to a reduction of the return by $5,000 ($10,000 x .50).
2. Although the project team has assurance from sales that the impact upon the sales force will not be substantial, the team believes that there is still a 25% likelihood that upon seeing the changes, sales will require additional training, costing $8,000, thereby reducing the return by $2,000 ($8,000 x 25).
3. Due to some inherent uncertainties regarding the technologies, as well as the direction of the organization and some anticipated acquisitions, there is a 10% likelihood that the entire project will fail or be superseded by other efforts. This means a reduction of the return by $8,000 ($80,000 in overall project costs x .10).
When all risks are factored, the reduction on the return is $5,000 + $2,000 + $8,000 or $15,000. The return is now $20,000 - $15,000 or $5,000, making the project substantially less attractive than it originally appeared. But by managing the risks, the value of this project can be increased to a level that again makes it attractive.
1. First, the requirements could be tightened by first developing a proof-of-concept or simply by delaying the project until the uncertainties can be eliminated. By taking this approach, the value of the project can be increased by eliminating the $5,000 reduction for the risk of
Almost all of us love to play games. Toddlers are intrigued by games of manipulating colorful shapes. Seniors crowd bingo halls. Every generation plays games of skill and games of chance from chess to backgammon to tic-tac-toe. Games can be social events, team events or solitary challenges. We watch games filled with vicarious thrills on reality TV. Games are part of the fabric of our lives and have a place in business also.Most games can be broken down into three parts: a challenge, a strategy, and a reward. Surprisingly most business endeavors consist of the same three parts: challenge, strategy, and reward. Yet when we approach a challenge in a work context, we normally think of it as “work” rather
When all risks are factored, the reduction on the return is $5,000 + $2,000 + $8,000 or $15,000. The return is now $20,000 - $15,000 or $5,000, making the project substantially less attractive than it originally appeared. But by managing the risks, the value of this project can be increased to a level that again makes it attractive.
1. First, the requirements could be tightened by first developing a proof-of-concept or simply by delaying the project until the uncertainties can be eliminated. By taking this approach, the value of the project can be increased by eliminating the $5,000 reduction for the risk of uncertainty.
2. A proof-of-concept could also be evaluated by the sales force to ensure that they will not need training, as feared, thereby eliminating the second risk and increasing the project's value by an additional $2,000.
3. Finally, although external uncertainties cannot be eliminated, mitigation and contingency plans can be put in place to reduce the overall impact on the project's value. For example, instead of structuring the project as an all-or-nothing proposition, perhaps it can be implemented so that parts or stages of it can be adapted to many different environments. Perhaps the data structures and encoding can be separated from the database implementation so that if organizational changes arise that undermine the implementation, the data structures can still be used in the implementation ultimately adopted by the organization. If a third of the work can be salvaged, the value of the project is increased by $2,640 ($8,000 x .33).
This brings the total increase in return as a result of risk management to $9,640.
After risk management, the value of the project is $14,640 ($5,000 return after risk assessment + total increase in return after risk management).
Conclusion:
The true value of a project cannot be evaluated without being realistic about the costs of the undertaking, including the risks. Risks that are simply acknowledged and built into the costs will always lessen the value of a project, motivating project managers to report overly optimistic outlooks, which undermines the very reason for considering risks. But if risks are actively managed by meeting them head-on, formulating mitigation and contingency plans and treating risk management as an ongoing process, risks can be minimized. As a result, project values can be increased, and organizations will get a more accurate and consistent understanding of project values.
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