Risk Analysis

Dr. Ashish Kumar

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What is risk?
Risk is a potential problem - it might happen, it might not.
Risk concerns future happenings.
Risks involve uncertainty and potential losses.
Risks are potential problems that may affect successful
completion of a software project.
We don’t know whether a particular event will occur or no
but if it does has a negative impact on a project.
We can not eliminate the risk properly, but we can try to
minimize it.
Risk analysis and management are intended to help a
software team understand and manage uncertainty during
the development process.
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Definitions of Risks
Risk is the probability of suffering loss.
Risk provides an opportunity to develop the
project better.
Risk exposure= Size (loss)* probability of (loss)

Difference between Problem and Risk:

Problem is some event which has already occurred but
risk is something that is unpredictable.

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Two main characteristics of risk
Uncertainty – the risk may or may not
happen, that is, there are no 100% risks
(those, instead, are called constraints).

Loss – the risk becomes a reality and

unwanted consequences, or losses occur.

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Risk Example
An example would be that team is working on a
project and the developer walks out of project and
other person is recruited in his place and he
doesn’t work on the same platform and converts it
into the platform he is comfortable with. Now the
project has to yield the same result in the same
time span. Whether they will be able to complete
the project on time. That is the risk of schedule.

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Types of Risk Strategies
Reactive strategies
• very common, also known as
fire fighting
Risk Strategies

• project team sets resources

aside to deal with problems
Reactive Risk • team does nothing until a risk
Strategy becomes a problem
Proactive strategies
Proactive Risk • risk management begins long
Strategy before technical work starts,
risks are identified and
prioritized by importance
• team builds a plan to avoid risks
if they can or to minimize risks
if they turn into problems
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Reactive vs. Proactive Risk Strategies
Reactive risk strategies
"Don't worry, I'll think of something“.
The majority of software teams and managers rely on
this approach.
Nothing is done about risks until something goes wrong
 The team then flies into action in an attempt to correct the
problem rapidly (fire fighting).
Crisis management is the choice of management
techniques.
Proactive risk strategies
Steps for risk management are followed.
Primary objective is to avoid risk and to have a
contingency plan in place to handle unavoidable risks in
a controlled and effective manner.
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Risk Categorization – Approach #1
Project risks
They threaten the project plan.
If they become real, it is likely that the project schedule
will slip and that costs will increase.
Technical risks
They threaten the quality and timeliness of the software
to be produced.
If they become real, implementation may become
difficult or impossible.
Business risks
They threaten the viability of the software to be built.
If they become real, they jeopardize the project or the
product.
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Risk Categorization – Approach #1
Sub-categories of Business risks
Market risk – building an excellent product or system
that no one really wants.
Strategic risk – building a product that no longer fits
into the overall business strategy for the company.
Sales risk – building a product that the sales force
doesn't understand how to sell.
Management risk – losing the support of senior
management due to a change in focus or a change in
people.
Budget risk – losing budgetary or personnel
commitment.

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Risk Categorization – Approach #2
Known risks
Those risks that can be uncovered after careful
evaluation of the project plan, the business and
technical environment in which the project is being
developed, and other reliable information sources (e.g.,
unrealistic delivery date).
Predictable risks
Those risks that are extrapolated from past project
experience (e.g., past turnover).
Unpredictable risks
Those risks that can and do occur, but are extremely
difficult to identify in advance.
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Risk Management
Risk analysis and management are actions that
help a software team to understand and manage
uncertainty.
Many problems can plague a software project.
Regardless of outcome, it’s a really good idea to
identify the risk, asses its probability of occurrence
and estimate its impact.

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Steps for Risk Management
1) Identify possible risks; recognize what can go
wrong.
2) Analyze each risk to estimate the probability
that it will occur and the impact (i.e., damage)
that it will do if it does occur.
3) Rank the risks by probability and impact
- Impact may be negligible, marginal, critical,
and catastrophic.
4) Develop a contingency plan to manage those
risks having high probability and high impact.

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Risk Identification
Risk identification is a systematic attempt to specify threats to
the project plan.
By identifying known and predictable risks, the project
manager takes a first step toward avoiding them when possible
and controlling them when necessary.
Generic risks
Risks that are a potential threat to every software project.
Product-specific risks
Risks that can be identified only by those with a clear
understanding of the technology, the people, and the
environment that is specific to the software that is to be built
This requires examination of the project plan and the
statement of scope.
"What special characteristics of this product may threaten
our project plan?" 13
Risk Item Checklist
Used as one way to identify risks.
Focuses on known and predictable risks in specific
subcategories (see next slide).
Can be organized in several ways.
A list of characteristics relevant to each risk subcategory.
Questionnaire that leads to an estimate on the impact of
each risk.
A list containing a set of risk component and drivers and
their probability of occurrence.

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Known and Predictable Risk Categories
 Product size – risks associated with overall size of the software to be
built.
 Business impact – risks associated with constraints imposed by
management or the marketplace.
 Customer characteristics – risks associated with sophistication of
the customer and the developer's ability to communicate with the
customer in a timely manner.
 Process definition – risks associated with the degree to which the
software process has been defined and is followed.
 Development environment – risks associated with availability and
quality of the tools to be used to build the project.
 Technology to be built – risks associated with complexity of the
system to be built and the "newness" of the technology in the system.
 Staff size and experience – risks associated with overall technical
and project experience of the software engineers who will do the
work.
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 (Questions are ordered by their relative importance to project success)

Questionnaire on Project Risk

1) Have top software and customer managers formally committed to
support the project?
2) Are end-users enthusiastically committed to the project and the
system/product to be built?
3) Are requirements fully understood by the software engineering team and
its customers?
4) Have customers been involved fully in the definition of requirements?
5) Do end-users have realistic expectations?
6) Is the project scope stable?
7) Does the software engineering team have the right mix of skills?
8) Are project requirements stable?
9) Does the project team have experience with the technology to be
implemented?
10) Is the number of people on the project team adequate to do the job?
11) Do all customer/user constituencies agree on the importance of the
project and on the requirements for the system/product to be built? 16
Risk Components and Drivers
The project manager identifies the risk drivers that affect the
following risk components
 Performance risk - the degree of uncertainty that the product
will meet its requirements and be fit for its intended use
 Cost risk - the degree of uncertainty that the project budget
will be maintained
 Support risk - the degree of uncertainty that the resultant
software will be easy to correct, adapt, and enhance
 Schedule risk - the degree of uncertainty that the project
schedule will be maintained and that the product will be
delivered on time
The impact of each risk driver on the risk component is divided
into one of four impact levels
 Negligible, marginal, critical, and catastrophic
Risk drivers can be assessed as impossible, improbable, probable,
and frequent. 17
Risk Projection (Estimation)
Risk projection (or estimation) attempts to rate each risk in
two ways:
The probability that the risk is real.
The consequence of the problems associated with the
risk, should it occur.
The project planner, managers, and technical staff perform
four risk projection steps (see next slide).
The intent of these steps is to consider risks in a manner
that leads to prioritization.
Be prioritizing risks, the software team can allocate limited
resources where they will have the most impact.

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Risk Projection/Estimation Steps
1) Establish a scale that reflects the perceived likelihood of
a risk. (e.g., 1-low, 10-high)
2) Delineate the consequences of the risk.
3) Estimate the impact of the risk on the project and
product.
4) Note the overall accuracy of the risk projection so that
there will be no misunderstandings.

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Contents of a Risk Table
A risk table provides a project manager with a simple
technique for risk projection.
 It consists of five columns:
 Risk Summary – short description of the risk
 Risk Category – one of seven risk categories
 Probability – estimation of risk occurrence based on group input.
 Impact – (1) catastrophic (2) critical (3) marginal (4) negligible
 RMMM – Pointer to a paragraph in the Risk Mitigation, Monitoring, and
Management Plan

Risk Summary Risk Category Probability Impact (1-4) RMMM

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Developing a Risk Table
List all risks in the first column (by way of the help of the
risk item checklists).
Mark the category of each risk.
Estimate the probability of each risk occurring.
Assess the impact of each risk based on an averaging of the
four risk components to determine an overall impact value
(See next slide).
Sort the rows by probability and impact in descending
order.
Draw a horizontal cutoff line in the table that indicates the
risks that will be given further attention.

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Assessing Risk Impact
Three factors affect the consequences that are likely if a risk
does occur:
 Its nature – This indicates the problems that are likely if the risk
occurs.
 Its scope – This combines the severity of the risk (how serious was
it) with its overall distribution (how much was affected).
 Its timing – This considers when and for how long the impact will
be felt.
The overall risk exposure formula is RE = P x C
 P = the probability of occurrence for a risk
 C = the cost to the project should the risk actually occur
Example
 P = 80% probability that 18 of 60 software components will have to
be developed
 C = Total cost of developing 18 components is $25,000
 RE = .80 x $25,000 = $20,000
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 Probability of
Risk Description Occurrence Loss Size (Days) Risk Exposure (Days)
Insufficient QA time to validate on all 45% 6 2.7
browsers and OS types.

Lack of verifiable sample data may affect 35% 18 6.3

the ability of the primary external
stakeholder to validate end product.

Inadequate staff available from external 25% 7 1.8

stakeholders until very late in cycle.

Following end-user testing, more effort 25% 18 4.5

on the user guide may be necessary.

Backup and restore requires 3rd-party 20% 12 2.4

solutions (not evaluated yet).

Insufficient time for external 10% 5 0.5

stakeholders to submit feedback on
layout and composition of reports.

Total Risk 18.2

Exposure 23
Risk Mitigation, Monitoring & Management
 An effective strategy for dealing with risk must consider three issues:
(Note: these are not mutually exclusive)
 Risk mitigation (i.e., avoidance)
 Risk monitoring
 Risk management and contingency planning
 Risk mitigation (avoidance) is the primary strategy and is achieved
through a plan.
 Example: Risk of high staff turnover.
 During risk monitoring, the project manager monitors factors that may
provide an indication of whether a risk is becoming more or less likely.
 Risk management and contingency planning assume that mitigation
efforts have failed and that the risk has become a reality then take actions.
 RMMM steps incur additional project cost.
 Large projects may have identified 30 – 40 risks.
 Risk is not limited to the software project itself.
 Risks can occur after the software has been delivered to the user. 24
Strategy for Reducing Staff Turnover
Meet with current staff to determine causes for turnover (e.g.,
poor working conditions, low pay, competitive job market).
Mitigate those causes that are under our control before the
project starts.
Once the project commences, assume turnover will occur and
develop techniques to ensure continuity when people leave.
Organize project teams so that information about each
development activity is widely dispersed.
Define documentation standards and establish mechanisms to
ensure that documents are developed in a timely manner.
Conduct peer reviews of all work (so that more than one person
is "up to speed").
Assign a backup staff member for every critical technologist.

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Software Safety & Hazard Analysis
These are software quality assurance activities that
focus on the identification and assessment of
potential hazards that may affect software
negatively and cause an entire system to fail.

If hazards can be identified early in the software

process, software design features can be specified
that will either eliminate or control potential
hazards.

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The RMMM Plan
The RMMM plan may be a part of the software
development plan (Paragraph 5.19.1) or may be a separate
document.
Once RMMM has been documented and the project has
begun, the risk mitigation, and monitoring steps begin.
 Risk mitigation is a problem avoidance activity.
 Risk monitoring is a project tracking activity.
Risk monitoring has three objectives
 To assess whether predicted risks do, in fact, occur.
 To ensure that risk aversion steps defined for the risk are being
properly applied.
 To collect information that can be used for future risk analysis.
The findings from risk monitoring may allow the project
manager to ascertain what risks caused which problems
throughout the project.
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Risk Information Sheets
Alternative to RMMM plan in which each risk is
documented individually.
Often risk information sheets (RIS) are
maintained using a database system.
RIS components
risk id, date, probability, impact, description
refinement, mitigation/monitoring
management/contingency/trigger
status
originator, assigned staff member

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Seven Principles of Risk Management
 Maintain a global perspective
 View software risks within the context of a system and the business
problem that is intended to solve.
 Take a forward-looking view
 Think about risks that may arise in the future; establish contingency plans.
 Encourage open communication
 Encourage all stakeholders and users to point out risks at any time.
 Integrate risk management
 Integrate the consideration of risk into the software process.
 Emphasize a continuous process of risk management
 Modify identified risks as more becomes known and add new risks as better
insight is achieved.
 Develop a shared product vision
 A shared vision by all stakeholders facilitates better risk identification and
assessment.
 Encourage teamwork when managing risk
 Pool the skills and experience of all stakeholders when conducting risk
management activities. 29
Thank You

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