IT Best PracticesProject Portfolio Management

The Role of Risk Analysis in Project Portfolio Management

volcano Picture, for a moment, a beautiful island, a paradise in the Caribbean West Indies. Imagine its groves of fruited trees, the warm nights and the crystal clear water just waiting for you to dive in. Now imagine an erupting volcano that makes two thirds of the island uninhabitable, and you’ve got the once-lovely island of. Montserrat is home to the Soufriere Hills volcano, whose eruption in 1995 turned the paradise into a wasteland. This comparison: the paradise on one part of the island and the fire on the other, makes it a perfect place to understand risk analysis, according to Scott Berinato writing on Berinato explains how scientists on the island are able to make complex risks analysis much more simply than previously, and how the Monte Carlo risk analysis simulation is one that is used quite often. He explains how that technique, along with decision tree analysis, should really be a CIO’s best friends. He also explains how simple “shorthand” risk analysis is sometimes a good fit, though it shouldn’t be a replacement for a formal risk analysis process:

This sort of informal risk analysis can sometimes be useful. Steve Snodgrass, CIO of construction materials supplier Granite Rock, has the misfortune of managing IT for a company that literally straddles the San Andreas Fault. Snodgrass doesn’t need statistics to tell him that it would be a bad idea to do nothing to mitigate the possibility that a quake will take out his critical applications. So he outsources his applications’ backup far from the fault line. However, CIOs often use this kind of commonsense reasoning as a way to avoid doing real risk analysis, say Tom DeMarco and Timothy Lister, authors of Waltzing with Bears: Managing Risk on Software Projects, a primer on statistical risk analysis for IT. “It’s been very frustrating to see a best practice like statistical analysis shunned in IT,” says Lister. “It seems there’s this enormously strong cultural pull in IT to avoid looking at the downside.”

To succeed, CIOs must face the dangers of projects and prepare for them correctly. While in the past it was possible to simply push ahead, our tightened economy and increased risk factors mean that IT needs to understand and think in probabilities rather than hopes. By recognizing the probabilities that can hamper or sink a project, CIOs can make more intelligent decisions and lead IT to the next level of successful project completion.

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