Project Balance Sheet

7/25/2019 Project Balance Sheet

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Square Peg onsulting

Copyright 2001, all rights reserved

Risk Analysis andThe Project Balance Sheet

John C. GoodpastureSquare Peg onsulting

[email protected]


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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.

Project Balance Sheet

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