- Risk qualitative Analysis: Evaluates key characteristics of individual risks enabling them to be prioritized for further action. Select risk characteristics => Collect and analyze data => Prioritize Risks => Categorize risk causes => Document results.
- Qualitative risk ratings: An indication of the potential impact of risks on a project. Typically a measure of the following characteristic; probability , Impact. Typically expressed as Low, Medium, High.
- High Risk: 50% or higher ( Likely)
- Medium Risk : Between 10% and 50% ( Unlikely)
- Low Risk: 10% or lower ( Very unlikely)
- High probability can be expressed
- as a %
- As a values statement
- As a comparison
- As a frequency
Tuesday, December 9, 2014
Risk identification output
Risk identification output is the RISK REGISTER:
- List of all risks ( properly stated)
- Risk owners
- Cause ( if known)
- Effect ( if known)
- Trigger Event ( signals the occurrence of risk)
- Preliminary Responses
Root Cause Analysis and Identification
- Can be used for risk discovery
- Start with stating an outcome the project intends to avoid
- Then work backwards to uncover sources that could cause the problem
Describing a risk event:
Cause => Risk => Effect
Thursday, October 9, 2014
Some interesting sites/readings worth visiting as follows:
Some interesting sites/readings worth visiting as follows:
http://www.pmi.org (PMI website)
http://www.pmzilla.com (PMZilla)
http://pmzilla.com/comprehensive-pmp-notes (PM Zilla - Summary Notes)
http://pmzilla.com/memorizing-inputs-tools-and-outputs-pmp (PM Zilla - Memorizing Inputs, Tools and Techniques, Outputs – ITTO’s)
http://www.oliverlehmann.com (Oliver F. Lehmann)
http://www.oliverlehmann.com/pmp-self-test/75-free-questions.htm#providers_ (OFL - free PMP Exam Self-Assessment Test and link to tons of Providers of Free PMP + CAPM Preparation Questions)
http://www.velociteach.com (Andy Crowe)
http://www.rmcproject.com (Rita Mulcahy – RMC Project Management)
http://www.cornelius-fichtner.com (Cornelius Fichtner)
http://www.project-management-prepcast.com (Cornelius Fichtner)
http://www.project-management-flash-cards.com (PM PrepCast free flash cards)
http://www.kimheldman.com (Kim Heldman)
http://www.simplilearn.com (Simplilearn)
http://www.pmstudy.com (many saying sample exams close to real one)
http://www.deepfriedbrainproject.com (cool site – PMP Exam Prep Blog)
http://www.brainbok.com (cool site – various topics)
http://quizlet.com/subject/pmp/#http://quizlet.com/subject/pmp (cool site - various subjects)
Thursday, August 8, 2013
Financial Management in Projects
•
Types and Sources of Finance
▫
Senior debt- Debt financing. This types of financing have to be paid first
( money borrowed from number of sources including banks. They have the first
claim to the project organization’s assets should the project fail and the
company goes into liquidation.
▫
Mezzanine debt- comes from the project organization’s
equity holders. Involves a schedule f
loan repayments and interest payments at a predetermined rate. Considered secondary to the senior debt. Higher risk and higher interest rates.
▫
Secured vs. unsecured debt – secured against the
companies assets and has lower interest rates in contrast to the unsecured
debt. More risk to the lenders as it is only given to the project and its
assets. Should the project fail the lenders have no way of securing their
money.
•
Cost of Financing
▫
Cost
of equity- is the
dividends paid to shareholders plus any estimate of the equity’s capital growth.
The cost of equity is usually calculated using the capital asset pricing model
(CAPM). (More can be learned about this model in any finance textbook.)
▫
Cost
of debt- is the
cost of debt financing, or the interest paid on the money borrowed. While the cost
of equity is payable out of untaxed income, the cost of debt is payable out of
taxed income.
▫
Cost of capital = Ratio of equity * Cost of equity +
Ratio of debt * Cost of debt
•
The cost of capital is the
average cost of various forms of finance used by the project organization
▫
Expected
Monetary Value - is also
the most appropriate financial measure when measuring future uncertainty, or
when multiple project outcomes are possible, each with a different cost and
schedule. It is defined as the summation of the value of each outcome in
dollars ($), weighted by the probability of that outcome. For example, consider
a project that needs to be redesigned, and assume that the new approach involves
some risk to accomplish this goal. One possible monetary outcome is $200,000
with a 40 percent probability of achieving this outcome, while anothermonetary
outcome is $150,000 with a 60 percent probability of occurrence. The EMV of
this project is
EMV = $200,00 ∗ 0.4 + $150,000 ∗ 0.6 = $170,000
What is the expected monetary value?
•
What is the expected monetary value?
It is a
financial measure used when measuring future uncertainty. It is defined as the
summation of the value of each outcome in dollars ($), weighted by the
probability of that outcome. For example, consider a project that needs to be
redesigned, and assume that the new approach involves some risk to accomplish
this goal. One possible monetary outcome is $200,000 with a 40 percent
probability of achieving this outcome, while another monetary outcome is
$150,000 with a 60 percent probability of occurrence. The EMV of this project
is
•
EMV = $200,00 ∗ 0.4 + $150,000 ∗ 0.6 = $170,000
•
Use of Functions
▫
Critical Success Factor
A project’s net return and risks are the two pivotal
factors that determine
its ultimate success and the value it delivers. In the
absence of thorough
risk assessment and proactive risk management at the
valuation and
implementation stages, project success cannot be
achieved.18
A simple example will serve to illustrate the
importance of risk assessment
and risk management to project value. Let us consider
a project
proposal with an expected gross return of $200,000
over five years, with
a cost of $150,000 to implement. Without factoring any
risks into the
equation, the net return is $50,000 ($200,000 − $150,000).
However,
risks to a project are inevitable, and this
hypothetical project is no exception.
Therefore, let us assume the following risks and their
impact on this
project:
1. There exists some uncertainty in the project
requirements and
there is 40 percent probability that development
efforts will cost
an additional $30,000. This will reduce the net return
by $12,000
($30,000 ∗ 0.4).
2. The project team believes that there is 20 percent
likelihood that
additional sales force training may be required. This
will likely
reduce the net return by $10,000 ($50,000 ∗ 0.2).
3. There is a 10 percent probability that the entire
project could fail or be
superseded by other projects because of technological
uncertainties
or a strategic change in direction. This implies a net
reduction of
$5,000 ($50,000 ∗ 0.1) in
the project’s expected net return.
When the impact of all of the above risks is factored
into account, the
reduction in the net return to the project is $27,000
($12,000 + $10,000
+ $5,000),
and the overall net return from the project now is $23,000
($50,000 − $27,000).
The project is now considerably less attractive than
it originally appeared.
Value Management
•
Concept of Value Management
·
Value Planning is a value study that occurs during the early
design or development stages of a project life cycle,
before a preferred
alternative is selected. Value planning typically
focuses on identifying
project objectives and developing functional
components and general
approaches to meeting those objectives. It ensures
that value is planned
into the project from its inception by addressing and ranking
stakeholders’
requirements in order of importance. This makes it
extremely important
for project team members to know who those
stakeholders are. Value
planning should be used for most projects.
▫
Value Engineering is the title given to value techniques
applied during the design or engineering phases of a
project. This value
study is conducted after the design alternatives have
been developed,
and perhaps before a preferred alternative has been
selected. Because
more information becomes available about the project
as the project
design process progresses, VE studies are much more
detailed than
VP studies.6 Value engineering employs many techniques that focus
on
quantifying and comparing—it investigates, analyzes,
compares, and
selects among various options that will meet the value
requirements of
stakeholders.
▫
Value Analysis refers to value techniques that are applied
retrospectively. Value analysis analyzes or audits a
project’s performance
by comparing a completed, or nearly completed, design
or project against
predetermined objectives. Value analysis studies are
normally conducted
during the post-manufacture/construction period, when
a project is fully
operational. In addition, the term ‘‘VA’’ can be
applied to the analysis of
nonmanufacture/construction-related procedures and
processes, such as studies of organizational structure, or procurement
procedures.
Estimating Work Duration
- Determine the availability
of the resources
- Show the availability
as a percentage of the effort required to achieve the work package
- Duration =
(Effort/Productivity)/Availability
▫
If effort is in # of hours, the duration will be in # of hours
▫
To have duration in days, divide the value calculated above by the
number of working hours per day
- Cost = Duration* Unit
cost
▫
Cost = (Effort/Productivity ) * Unit cost
▫
Determine duration as per number 3 above
▫
Unit cost : e.g. $40/hour
Determining Durations of Work packages
•
PERT of each work package:
•
PERT of the entire project is the sum of the PERTs of all the
activities on the critical path
•
Standard Deviation of a work package:
PERT, Sigma and probabilities
•
50% probability that a task’s duration equals
its PERT
•
68% probability that a task’s duration is
between ( PERT + 1 * Sigma) and (PERT – 1 * sigma)
•
95% probability that a task’s duration is
between ( PERT + 2 * Sigma) and (PERT – 2 * sigma)
Project Needs assessment and prioritizing the Needs
Depending on the project Time, Cost or Quality
might have a higher importance
Needs identification is the first stage of the project
life cycle.
During the project needs assessment phase, the needs
of all project stakeholders
must be clearly defined, with no ambiguity. At this juncture, it is not
important to determine whether the project can satisfy all these needs, or to
worry about the best approaches to meet them. All we are attempting to do
during this stage is to identify the various and often-conflicting expectations
of the different stakeholders. When the needs of the project are clearly
understood and defined, several benefits can accrue:
•
After organization’s needs and requirements are identified and
analyzed, SOW (Statement of Work) can be defined. It will then trigger the
initiation of a project. The following items should be included in the SOW
document
▫
Summary of Work Requested
▫
Major Deliverables
▫
Major Milestones
•
Project costs include:
▫
Direct , indirect
▫
Fixed, variable
▫
Recurring non-recurring
•
Project cost estimates has great value in project cost management;
based on the estimates, everything else can be determined
•
The costliest ways to estimate cost is bottom-up, followed by the
definitive method
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