Project Balance Sheet
Transcript of Project Balance Sheet
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Risk Analysis andThe Project Balance Sheet
John C. GoodpastureSquare Peg onsulting
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Sponsors & PMs
Sponsors have expectations (scope,payoff) and make resourcecommitments (time and money)
PMs calculate capabilities and capacityfor the specified scope and resources
What happens if the former and thelatter dont equate?
Somebody has to take a risk!
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Every project is a balanceResources: time,$, staff, facilitiesBenefits, Investment
FunctionFeature
Convenience
Conformance to requirements
Risk
Quality
Value: Needs forwhichstakeholders pay
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Balancing the project
Investor
Desired outcomes arebusiness driven
Deterministic, limited
resources Risk proportional to
expected reward
Unknowing ofimplementationdetails
Project Manager
Outcomes specifiedin charter
Resources are
estimates Risks arise from
internal & externalsources
Details drive risk andresource estimates
Project Equation: Resources committed =
Resources estimated + Project risks
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Project Value fromthe Top Down
Project Estimate fromthe Bottom Up
Investors
ResourceCommitment
Risk
ScopeTime
Resources
Managements ExpectedReturn on Investment
Projects Employmentof Investment
Risk balances Value with Capacity
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Sponsors view of the
project
Business case ofcustomer needsand wants
Financialmeasures &imperatives
Milestones foroperations
Organizationalassets committed
Project capacity
and capabilityrespond to value
Features
FunctionsBenefitsResources
Business Risks
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PMs view of the projectProjectvalues fromgoals andstrategy Risk
As much risk as isnecessary to closeany gaps
Scope & Quality
Time Cost &
Resources
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Risk begins with business case
translation to specification
ProjectBusiness Case
Sample the business
case via elicitation andanalysis to developspecification
Validate specification with
business case to discoversampling errors
Verify deliverables withbusiness case
Correct errors andbaseline
Manage requirements
Identify changeEvaluate impactApprove and apply change
Requirements baseline
Requirementsspecification hassampling errors
Sampled points of thebusiness case
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Project Balance Sheet
Project Value Project Implementation
Riskfrom requirements translation error
between business case and project plan
Riskfrom misalignment between resources
offered in the business case and the
implementation estimates
Riskfrom the uncertainty that
requirements may change during the course
of the project
Vision state:Describes the state of the
organization when the business case is
satisfied
Business case baseline: Specifies the
required benefits, scope of functionality
and performance, resource input, and
timeline for performance and payback
Business rules:Specifies the context,
constraints, and imposed rules that governthe project
Requirements baselineas translated from
the business case into an actionable
requirements specification
Functional releases:Sequence thesatisfaction of the business case
Implementation estimatesof scope and
quality, resources, and time
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PMs risk impact chart
ProjectSponsors
Expectation
Face Value of
Impact of
Risky
Outcome
Probability ofOccurrence
(0-100%)
Expected
Impact
(Face Value x
Probability)
EMV of
Impact @
$15K per Day
60 days delay 5% 3 days $45K10 days early 15% 1.5 days ($22.5K)
On-time
delivery
80% 0 days $0K
Deliverables
will be on time
and within
budget Expected Impact of IdentifiedRisk
6 days $22.5K
Schedule Example
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Distribution for schedule example
On-time
0.15
0.80
0.05Expected Outcome+6 days
ProbabilityofOccurrence
10 daysearly 60 days late
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Balance sheet viewOn-timedelivery,within cost
RiskManage to avoid 60days x $15K = $900
Time Cost &Resources
Negotiatefor 6 days &
$22.KScope & Quality
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Whats been learned?
Every project employs risk to balancesponsor expectation with PM estimates.
Project balance sheet is a tool for
capturing the sponsor and PM view ofthe same project.
Translating the sponsor view to the
project view is a sampling process thathas sample error. This is a risk source.