Risk and risk management theory and practice
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Risk and Risk Management (Theory and Practice). Todd Little and Chris Matts. “It’s tough to make predictions, especially about the future.” Yogi Berra, Niels Bohr. Exercise What are the types of risk?. How do “Risky Businesses” work. Financial Markets.

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Risk and Risk Management (Theory and Practice)

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Risk and Risk Management (Theory and Practice)

Todd Little and Chris Matts

“It’s tough to make predictions, especially about the future.”Yogi Berra, Niels Bohr


Exercise

What are the types of risk?


How do “Risky Businesses” work


Financial Markets

A severe depression like that of 1920-21 is outside the range of probability.

Harvard Economic Society, Weekly Letter, November 16, 1929.


New Product Development

I think there is a world market for about five computers.

Thomas J. Watson, chairman of IBM, 1943.


War

They couldn't hit an elephant at this dist…

General John B. Sedgwick, Union Army Civil War officer's last words, uttered during the Battle of Spotsylvania, 1864


Oil & Gas Exploration

90-80% Failure


Which Risks Are Important


Well 2

Well 1

Oil and Gas Drilling

Surface

Seismic reflection

A

Reservoir

B

Oil

Water


Oil and Gas Drilling

Well 2

Well 1

Surface

Seismic reflection

A

Reservoir

B

Oil

Water


Geosteering for Uncertainty

Well 2

Well 1

Surface

A

Planned

Reservoir

B

Actual

Reservoir

Well 2’

Figure 2


Hurricane Rita


Getting Better


Movies

78% of Films Lose Money

6% of films make 80% of profit


Books

300,000 in 2004,

<25% sold 100 copies


Venture Capital


Categories of risk

Business Case Failure

Delivery Failure

Collateral Damage


Delivery Challenges/Failures

Standish Group 2006, reported by CEO Jim Johnson, CIO.com, ‘How to Spot a Failing Project’


Business Case Failure


Collateral Damage

11 hour wait time

20-30 deaths


Wrong Priorities


Collateral Damage

An effective roll-back strategy


Delivery Failure results in Collateral Damage


I’m beginning to think it wasn’t such a good idea to turn off those unit tests


Business Case Failure


Features and Functions

Always or Often Used: 20%

Always 7%

Often 13%

Never Used 45%

Sometimes 16%

Rarely Used 19%

Never or Rarely Used: 64%

Standish Group Study, reported by CEO Jim Johnson, XP2002


Purpose Alignment Model

High

Partner

Differentiating

Market

Differentiating

Who Cares?

Parity

Low

High

Low

Mission Critical

Purpose Does Not Equal Priority


Graphically - Before

High

Project Tracking

Document Mgmt

Document Edit

Document Library

Search

EDGAR Integration

Market

Differentiating

Low

High

Low

Mission Critical


Graphically - Before

High

Portal

Document Edit

Market

Differentiating

Project Tracking

Document Mgmt

Document Library

Search

EDGAR Integration

Low

High

Low

Mission Critical

Result: Better product in half the time and 60% of the original cost


Example: Apple

High

New Product Design

User Experience

Content Distribution

ATT

Market

Differentiating

Other Software

MS Office

Intel Hardware

Peripherals

Low

High

Low

Mission Critical


Considerations


Delivery Failure


When will we get the requirements?

All in good time, my little pretty, all in good time

But I guess it doesn't matter anyway

Just give me your estimates by this afternoon

Not so fast! Not so fast! ... I'll have to give the matter a little thought. Go away and come back tomorrow

No, we need something today!

Ok then, it will take 2 years.

No, we need it sooner.

Doesn't anybody believe me?

I already promised the customer it will be out in 6 months

You're a very bad man!

Managing the Coming Storm Inside the Tornado

Project Kickoff

Team Unity


I may not come out alive, but I'm goin' in there!

The Great and Powerful Oz has got matters well in hand.

My! People come and go so quickly here!

"Hee hee hee ha ha! Going so soon? I wouldn't hear of it! Why, my little party's just beginning!

We’re not in Kansas Anymore

Developer Hero

Reorg

Testing


IEEE Software, May/June 2006


Data from LGC


CDF Distribution Curve (LGC)


How does Estimation Accuracy Improve Over Time? (Boehm)

2

0.5


Landmark Cone of Uncertainty


Another look?


But is Uncertainty Really Reduced?

“Take away an ordinary person’s illusions and you take away happiness at the same time.”

Henrik Ibsen--Villanden


Cumulative Distribution (CDF) Curve


Remaining Uncertainty


The Pipe of Uncertainty

2

0.5


Why is

Software

Late?


From the home office in Duncan, Oklahoma

Dubai, UAE

Top Ten reasons why we are late in 2008

Top 10 List

Top 10 List


Top Ten reasons why we are late in 2008

10: Requirements, what Requirements?

What you want, baby I got it

R-E-Q-U-I-R-E

Find out what it means to me


Top Ten reasons why we are late in 2008

9: Dependencies on other groups that were late


LIFE

OF

SOFTWARE

Top Ten reasons why we are late in 2008

8: Over-optimistic Schedule Estimation

Always look on the bright side of code

. . . . . . .

Always look on the bright side of code

. . . . . . .

The code’s a piece of $#!^,

when we look at it

We can always overlook a minor kink . . . .

It probably compiles, it might even link . . .

Surely that must mean it doesn’t stink


Top Ten reasons why we are late in 2008

7: Those weren’t MY estimates

Scheduling Ritual

How low can you go!


Top Ten reasons why we are late in 2008

6: Not enough testers or documentation resources.

Who needs them anyway? We put those bugs--I mean features--in there on purpose. Besides, it was difficult to program, it should be difficult to use.


Top Ten reasons why we are late in 2008

5: Offshore and Outsourcing issues

My source code lies over the ocean,

My source code lies over the sea .

My source code lies over the ocean,

Oh bring back my source code to me

. . . . .

Bring Back, Bring Back,

oh bring back my source code to me, to me

Bring Back, Bring Back,

oh bring back my source code to me


Top Ten reasons why we are late in 2008

4: One word, Ch-ch-ch-changes


Top Ten reasons why we are late in 2008

3: I can’t get no, System Admin

  • I can’t get no, CM action

  • ‘cause I try,

  • ..and I try,

  • ….and I try,

  • ……and I try….


Top Ten reasons why we are late in 2008

2: You didn’t give me the headcount that you promised


Top Ten reasons why we are late in 2008

1: Weren’t you doing the backups!?


Why is Software Late?Genuchten 1991 IEEE


Why is Software Late?Genuchten 1991 IEEE


Defending an Unpopular Schedule

  • Developers tend to be temperamentally opposed to the use of negotiating tricks. Such tricks offend their sense of technical accuracy and fair play. Developers don't want to offer lopsidedly high initial estimates even when they know that customers, marketers, or bosses will start with lopsidedly low bargaining positions.

    • Steve McConnell

http://www.stevemcconnell.com/ieeesoftware/bp03.htm


We want this

Innovation

Revenue

Predictability

Efficiency

SOA

Software as a Service

Late projects

Web Services

Integration

ERP

Web Portal

BPM

Agile


Negotiation Bias

  • "It is difficult to get a man to understand something when his salary depends upon his not understanding it.“

    • Upton Sinclair:


Test 1 (Jørgensen)


Test 1


Test 2


Test 2


Test 3


Test 3


Understand Bias

  • "What gets us into trouble is not what we don't know. It's what we know for sure that just ain't so.“

    • Mark Twain


Uncertainty

Know that

we know

Know that

we don’t know

Knowable

Unknowable

Don’t know that

we know

Don’t know that

we don’t know


Uncertainty

Know that

we know

Planning

p10

Know that

we don’t know

Risk Management

p50

Knowable

Unknowable

Don’t know that

we know

Don’t know that

we don’t know

Uncertainty

Management

p90


The Goal

OnTime

To Spec

Within Budget


Da Plan, Boss – Da Plan


The Cone of Uncertainty

We expect uncertainty and manage for it through iterations, anticipation, and adaptation.


Delivery Failure.

staff liquidity


Colts

Bulls

Uncertainty

Cows

Project Complexity

Context Leadership Model

Sheep Dogs


Context Leadership Model

High

Colts

Bulls

Agility to handle uncertainty

Simple, young projects.

Process definition to cope with complexity

Need agility

Tight Teams

Uncertainty

Cows

Sheep Dogs

Complex, mature market

laissez faire

Need defined interfaces

Low

Low

High

Project Complexity


Bull Product Release


Reduce Uncertainty or Complexity


Partitioning

Colt Project

Bull Program

Dog Project

Cow Project

Remember:Loose Coupling and Strong Cohesion


First Integration Release

High

Colts

Bulls

The Integration Release

New acquisitions

Uncertainty

SheepDogs

Cows

Existing Products

Integration data model

Low

Low

High

Project Complexity


Integrating Software by Integrating People

Creating the Future

[email protected] Weekly

PMM Quarterly

Developers’ Conference Yearly


Y2K Release

High

Colts

Bulls

None

None

Uncertainty

Cows

Dogs

All Products

The overall Program

Low

Low

High

Project Complexity


Deploy

Project Leadership Guide

Create

Change

Embrace

Change

High

Invent

Market

Differentiating

Ad Hoc

Agile

Eliminate

Change

Control Change

Manage

Offload

Low

Outsource

Structured

High

Low

Mission Critical


Portfolio Management

Uncertainty

Project Complexity


Not all dogs are the same


Successful Projects?


Contact

  • Todd Little

    • [email protected]

    • www.toddlittleweb.com

    • www.accelinnova.com


Extra Slides


High

Consider

Extreme

Caution

Probability

of Success

Caution

Avoid

Low

High

Low

Risked Cost of Failure

Project Selection


Decisions, Decisions, Decisions

What do we do?

When do we do it?

When do we decide?


Real Options


Deciding Is Not a Once in a Lifetime Event

  • Knowledge Improves

  • Business Conditions Change

  • Project Conditions Change

  • Do You Know Why You Are Deciding Early?


Risks – Types of Uncertainty

Cost/Time Uncertainty

General Market Uncertainty

Feature Acceptance Uncertainty


Uncertainty

Target

Best possible scenario if everything went perfectly.

Plan

Planned scope for the release at the optimal time that it can be released.

Contract

Minimum scope for the release at the latest date that it can be released.


The A/B/C List sets proper expectations

Only “A” features may be committed to customers.

“A” features must fit in a p90 confidence schedule. No more than 50% of the planned effort can be allocated to “A” items


A/B/C List

50%

25%

25%

A

B

C

D

Typical Delivery

C

A

B

Backlog Plan

Target Delivery Date

50%

100%


A/B/C List

A

50%

25%

25%

B

C

D

Uncertainty Risk

C

A

B

Backlog Plan

Target Delivery Date

50%

100%


C

A

B

Products Lifecycle Paths


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