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The project balance sheet is like its accounting cousin: a double-entry two-side view of the project. It reflects the sponsor's view and the PMO view and the gap in between
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Square Peg Consulting
Copyright 2001, all rights reserved
Risk analysis and the Project
Balance Sheet
John C. Goodpasture Square Peg Consulting
Square Peg Consulting
Copyright 2001, all rights reserved
Sponsor’s & PMs
Sponsors have expectations [scope, payoff] and make resource commitments [time and money]
PMs calculate capabilities and capacity for the specified scope and resources
What happens if the former and the latter don’t equate?
Square Peg Consulting
Copyright 2001, all rights reserved
Somebody has to take a risk!
Square Peg Consulting
Copyright 2001, all rights reserved
Every Project is a
balance….
Quality
Resources: time,
$s, staff, facilities
Function
Feature
Convenience
Conformance to “requirements”
Value: Needs for
which
stakeholders pay
Benefits, Investment
Risk
Square Peg Consulting
Copyright 2001, all rights reserved
Balancing the Project
Investor
Desired outcomes are
business driven
Deterministic, limited,
resources
Risk proportional to
expected reward
Unknowing of
implementation
details
Project Manager
Outcomes specified
in charter
Resources are
estimates
Risks arise from
internal & external
sources
Details drive risk and
resource estimates
Project Equation: Resources committed =
Resources Estimated + Project Risks
Square Peg Consulting
Copyright 2001, all rights reserved
Project Value from
the Top Down
Project Estimate from
the Bottom Up
Investor’s
Resource
Commitment
Management’s Expected
Return on Investment
Risk
Scope
Time
Resources
Project’s Employment
of Investment
“Risk balances Value with Capacity”
Square Peg Consulting
Copyright 2001, all rights reserved
Sponsor’s view of the
project
Business case of
customer needs
and wants
Financial
measures &
imperatives
Milestones for
operations
Organizational
assets committed
Project capacity
and capability
respond to value
Features
Functions
Benefits
Resources
Business Risks
Square Peg Consulting
Copyright 2001, all rights reserved
PMs view of the project
Project
values from
goals and
strategy Risk As much risk as is
necessary to close
any “gaps”
Scope & Quality
Time Cost &
Resources
Square Peg Consulting
Copyright 2001, all rights reserved
Risk begins with business case
translation to specification
Requirements
Specification has
“sampling errors”
Project Business
Case
Sample business case via
elicitation and analysis to
develop specification
Validate Specification with
business case to discover
sampling errors
Verify deliverables with
business case
Correct errors and baseline
Manage Requirements
•Identify change
•Evaluate Impact
•Approve and apply change
Requirements baseline Sampled points of the
business case
Square Peg Consulting
Copyright 2001, all rights reserved
Project Balance Sheet
Project Value Project Implementation
Risk from requirements translation error
between business case and project plan
Risk from misalignment between resources
offered in the business case and the
implementation estimates
Risk from 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 govern
the project
Requirements Baseline as translated from
the business case into an actionable
requirements specification
Functional releases: sequence the
satisfaction of the business case
Implementation estimates of scope and
quality, resources, and time
Square Peg Consulting
Copyright 2001, all rights reserved
PM’s risk impact chart
Project Sponsor’s
expectation
Face Value of Impact of risky
outcome
Probability of Occurrence [0-100%]
Expected Impact
[Face Value x Probability]
EMV of Impact @
$15K per day
Deliverables
will be on time
and within
budget
60 days delay 5% 3 days $45K
10 days early 15% (1.5 days) ($22.5K)
On-time
delivery 80% 0 days $0K
Expected Impact of identified
Risk 1.5 days $22.5K
Schedule Example
Square Peg Consulting
Copyright 2001, all rights reserved
Distribution for Schedule Example
On-time 10 days
Early
60 days late
0.15
0.80
0.05 Expected Outcome
+1.5 days
Pro
babili
ty o
f O
ccurr
ence
Square Peg Consulting
Copyright 2001, all rights reserved
Balance Sheet view
On time
delivery,
within cost Risk
Manage to avoid 60
days x $15K = $900
Scope & Quality
Time Cost &
Resources
Negotiate
for 1.5 days
&
$22.K
Square Peg Consulting
Copyright 2001, all rights reserved
What’s been learned?
Every project employs risk to balance
sponsor expectation with PM estimates
Project balance sheet is a tool for
capturing the sponsor and PM view of
the same project
Translating the sponsor view to the
project view is a sampling process that
has sample error. This is a risk source
Square Peg Consulting
Copyright 2001, all rights reserved
www.sqpegconsulting.com
johngoodpasture.com
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