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Risk projection, also called risk estimation, attempts to rate each risk in two ways—the likelihood or probability that the risk is real and the consequences of the problems associated with the risk, should it occur. The project planner, along with other managers and technical staff, performs four risk projection activities: (1) establish a scale that reflects the perceived likelihood of a risk, (2) delineate the consequences of the risk, (3) estimate the impact of the risk on the project and the product, and (4)note the overall accuracy of the risk projection so that there will be no misunderstandings.

Developing a Risk Table

A risk table provides a project manager with a simple technique for risk projection .A project team begins by listing all risks (no matter how remote) in the first column of the table. This can be accomplished with the help of the risk item checklists  Each risk is categorized in the second column (e.g., PS implies a project size risk, BU implies a business risk). The probability of occurrence of each risk is entered in the next column of the table. The probability value for each risk can be estimated by team members individually. Individual team members are polled in round-robin fashion until their assessment of risk probability begins to converge.

Next, the impact of each risk is assessed. Each risk component is assessed and an impact category is determined. The categories for each of the four risk components—performance, support, cost, and
schedule—are averaged to determine an overall impact value.

Once the first four columns of the risk table have been completed, the table is sorted by probability and by impact. High-probability, high-impact risks percolate to the top of the table, and low-probability risks drop to the bottom. This accomplishes first-order risk prioritization.

The project manager studies the resultant sorted table and defines a cutoff line. The cutoff line (drawn horizontally at some point in the table) implies that only risks that lie above the line will be given further attention. Risks that fall below the line are re-evaluated to accomplish second-order prioritization. Risk
impact and probability have a distinct influence on management concern. A risk factor that has a high impact but a very low probability of occurrence should not absorb a significant amount of management time. However, high-impact risks with moderate to high probability and low-impact risks with high probability should be carried forward into the risk analysis steps that follow.

All risks that lie above the cutoff line must be managed. The column labeled RMMM contains a pointer into a Risk Mitigation, Monitoring and Management Plan or alternatively, a collection of risk information sheets developed for all risks that lie above the cutoff.
Risk probability can be determined by making individual estimates and then developing a single consensus value. Although that approach is workable, more sophisticated techniques for determining risk probability have been developed. Risk drivers can be assessed on a qualitative probability scale that has the following values: impossible, improbable, probable, and frequent. Mathematical probability can then be associated with each qualitative value (e.g., a probability of 0.7 to 1.0 implies a highly probable risk).

Assessing Risk Impact

Three factors affect the consequences that are likely if a risk does occur: its nature, its scope, and its timing. The nature of the risk indicates the problems that are likely if it occurs. For example, a poorly defined external interface to customer hardware (a technical risk) will preclude early design and testing and will likely lead to system integration problems late in a project. The scope of a risk combines the severity (just how serious is it?) with its overall distribution (how much of the project will be affected or how many customers are harmed?). Finally, the timing of a risk considers when and for how long the impact will be felt. In most cases, a project manager might want the “bad news” to occur as soon as possible, but in some cases, the longer the delay, the better.

Returning once more to the risk analysis approach proposed by the U.S. Air Force , the following steps are recommended to determine the overall consequences of a risk:
1. Determine the average probability of occurrence value for each risk component.
2. Determine the impact for each component based on the criteria .
3. Complete the risk table and analyze the results as described in the preceding sections.
The overall risk exposure, RE, is determined using the following relationship:

RE = P x C

where P is the probability of occurrence for a risk, and C is the the cost to the project should the risk occur.

For example, assume that the software team defines a project risk in the following manner:

Risk identification. Only 70 percent of the software components scheduled for reuse will, in fact, be integrated into the application. The remaining functionality will have to  be custom developed.

Risk probability. 80% (likely).

Risk impact. 60 reusable software components were planned. If only 70 percent can be used, 18 components would have to be developed from scratch (in addition to other custom software that has been scheduled for development). Since the average component is 100 LOC and local data indicate that the software engineering cost for each LOC is \$14.00, the overall cost (impact) to develop the components would be 18 x 100 x 14 = \$25,200.

Risk exposure. RE = 0.80 x 25,200 ~ \$20,200.

Risk exposure can be computed for each risk in the risk table, once an estimate of the cost of the risk is made. The total risk exposure for all risks (above the cutoff in the risk table) can provide a means for adjusting the final cost estimate for a project. It can also be used to predict the probable increase in staff resources required at various points during the project schedule.

The risk projection and analysis techniques are applied iteratively as the software project proceeds. The project team should revisit the risk table at regular intervals, re-evaluating each risk to determine when new circumstances cause its probability and impact to change. As a consequence of this activity, it may be necessary to add new risks to the table, remove some risks that are no longer relevant, and change the relative positions of still others.

Risk Assessment

At this point in the risk management process, we have established a set of triplets of
the form :
[ri, li, xi]
where ri is risk, li is the likelihood (probability) of the risk, and xi is the impact of the risk. During risk assessment, we further examine the accuracy of the estimates that were made during risk projection, attempt to rank the risks that have been uncovered, and begin thinking about ways to control and/or avert risks that are likely to occur.

For assessment to be useful, a risk referent level  must be defined. For most software projects, the risk components discussed earlier—performance, cost, support, and schedule—also represent risk referent levels. That is, there is a level for performance degradation, cost overrun, support difficulty, or schedule slippage (or any combination of the four) that will cause the project to be terminated. If a combination of risks create problems that cause one or more of these referent levels to be exceeded, work will stop. In the context of software risk analysis, a risk referent level has a single point, called the referent point or break point, at which the decision to proceed with the project or terminate it (problems are just too great) are equally weighted.
In reality, the referent level can rarely be represented as a smooth line on a graph. In most cases it is a region in which there are areas of uncertainty; that is, attempting to predict a management decision based on the combination of referent values is often impossible. Therefore, during risk assessment, we perform the following steps:
1. Define the risk referent levels for the project.
2. Attempt to develop a relationship between each (ri, li, xi) and each of the referent levels.
3. Predict the set of referent points that define a region of termination, bounded by a curve or areas of uncertainty.
4. Try to predict how compound combinations of risks will affect a referent level.
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