Project_03 Assignment_03 – Risk Analysis using the Risk Management Matrix (RMM) Your assignment is to perform a risk analysis of the following scenario using the Risk Management Matrix (RMM). Outsourcing—Big Savings, Big Risks The top reason why organizations outsource services is to save money. However, many organizations are not saving as much money as they had hoped. According to Technology Partners International (TPI), the average savings from outsourcing is just less than 15 percent. Interestingly, a quarterly status report on outsourcing produced by TPI also stated that while the savings from outsourcing may not be what many organizations expect, outsourcing is still growing at a steady rate. The reason may not be the money an organization can save to reinvest into something else, but rather a shortage of experienced and skilled IT staff that can be hired. On the other hand, outsourcing has increasingly morphed from a cost savings strategy to a business strategy that can allow a company to enter new markets or consolidate several internal services to one provider. More organizations are finding out that saving money is only a small part of the overall picture. However, outsourcing is not without risk. It's Tuesday morning at 8:30 AM and five members of a project team at Ondeo Nalco—a water treatment, chemical services company located in Naperville, Illinois—are gathered around a conference table while their project manager dials the speakerphone to call their counterparts in Manila. Meanwhile, it's 8:30 PM in Manila where three Filipino programmers from an outsourcing firm called Headstrong Corp. take the call after working a long day. Both teams know each other's faces behind the speakerphone because the three Filipino programmers spent two months in Naperville getting to know the Ondeo Nalco team. Although the Filipino's English is excellent, a Filipino project manager takes part in the conference to make sure that all instructions are understood. This outsourcing partnership has been running smoothly for almost a year. Ondeo Nalco entered into this project with Headstrong to develop jointly a business intelligence warehouse. While Ondeo Nalco believed it could save money by scaling back and letting offshore programmers make smaller enhancements to the system, it soon learned that the Philippines was a good place for outsourcing many of its IT needs. According to Atul Vahistha, CEO of NeoIT Inc., an offshore outsourcing advisory firm in San Ramon, California, “After India, the Philippines is probably the second most popular destination when it comes to pure offshore outsourcing.” The popularity of the Philippines is due to its English proficiency, highly skilled workforce, developing telecommunications infrastructure, and low cost. For example, an experienced programmer in the Philippines earns between $6,000 and $12,000 a year. The research firm Meta Group Inc. ranks the Philippines behind other Asia-Pacific countries because of its political instability and shortage of indigenous IT companies. The Philippines for the past decade has been dealing with militant Muslim insurgents. According to Howard Rubin, an executive vice president at Meta Group, “It has a destabilizing effect on the nation's ability to Project_03 attract and sustain foreign capital investment, and thus poses serious threats to the economy.” However, Vahistha counters that this threat is mainly limited to the southern islands and doesn't affect IT work in Manila. Yet he suggests that companies that offshore work to the Philippines should have a solid business continuity and disaster recovery plan. Moreover, there appears to be a shortage of experienced project managers in the Philippines to oversee projects and more software developers are needed. While the Philippines with its large English-speaking population makes it a logical choice for software development, there are only about 10,000 software programmers nationwide and only 30 companies that focus on writing software. In contrast, Ireland has a population 20 times smaller than the Philippines and has over 800 indigenous software development firms. Besides the time difference, Ondeo Nalco has found that a major challenge has been security. Paul Gould, an IT group leader for global development, explains “There's a perception that if you're going to open up your network to anybody on the other side of the world, you have to be extra secure because of the danger that they'll be contaminated by connections into their network.” As a result, Ondeo Nalco and Headstrong spent a month determining which firewall ports should be open, what level of access people needed, and what work could be completed in Naperville, Illinois versus Manila. SOURCES: Adapted from: Stacy Collett, The Philippines: Low Cost, but Higher Risk, Computer-world, September 15, 2003. Jerri Ledford, Outsourcing to Save Money? Think Again! Computer-world, April 20, 2006. Identify one technology risk and one non-technology risk an organization may encounter when executing the business intelligence warehouse project by outsourcing a component of an IT project to a foreign country. Develop a risk management plan using the RMM to manage these risks. Calculate the total Management Reserve resulting from your risk analysis of the above situation and list it in the RMM as shown in the example provided on Attachment. Explain why these risks are time sensitive. Also explain how you would manage this risk time-sensitivity. Make the following assumptions: A programmer working for Ondeo Nalco in the US earns between $60K and $100K per year. The project start date is April 15th 2016; the technology risk was entered into the RMM on May 1st 2016. The non-technology risk was entered into the RMM on May 15th 2015. The cost of a round-trip air ticket from Chicago, Ill to Manila, PI is $5,000 business class. Make any other reasonable assumptions you need to complete the RMM for these 2 risks. MAKE SURE YOU DOCUMENT AND LIST ALL YOUR ASSUMPTIONS. Project_03 Assignment_03 – Risk Analysis using the Risk Management Matrix (RMM) Your assignment is to perform a risk analysis of the following scenario using the Risk Management Matrix (RMM). Outsourcing—Big Savings, Big Risks The top reason why organizations outsource services is to save money. However, many organizations are not saving as much money as they had hoped. According to Technology Partners International (TPI), the average savings from outsourcing is just less than 15 percent. Interestingly, a quarterly status report on outsourcing produced by TPI also stated that while the savings from outsourcing may not be what many organizations expect, outsourcing is still growing at a steady rate. The reason may not be the money an organization can save to reinvest into something else, but rather a shortage of experienced and skilled IT staff that can be hired. On the other hand, outsourcing has increasingly morphed from a cost savings strategy to a business strategy that can allow a company to enter new markets or consolidate several internal services to one provider. More organizations are finding out that saving money is only a small part of the overall picture. However, outsourcing is not without risk. It's Tuesday morning at 8:30 AM and five members of a project team at Ondeo Nalco—a water treatment, chemical services company located in Naperville, Illinois—are gathered around a conference table while their project manager dials the speakerphone to call their counterparts in Manila. Meanwhile, it's 8:30 PM in Manila where three Filipino programmers from an outsourcing firm called Headstrong Corp. take the call after working a long day. Both teams know each other's faces behind the speakerphone because the three Filipino programmers spent two months in Naperville getting to know the Ondeo Nalco team. Although the Filipino's English is excellent, a Filipino project manager takes part in the conference to make sure that all instructions are understood. This outsourcing partnership has been running smoothly for almost a year. Ondeo Nalco entered into this project with Headstrong to develop jointly a business intelligence warehouse. While Ondeo Nalco believed it could save money by scaling back and letting offshore programmers make smaller enhancements to the system, it soon learned that the Philippines was a good place for outsourcing many of its IT needs. According to Atul Vahistha, CEO of NeoIT Inc., an offshore outsourcing advisory firm in San Ramon, California, “After India, the Philippines is probably the second most popular destination when it comes to pure offshore outsourcing.” The popularity of the Philippines is due to its English proficiency, highly skilled workforce, developing telecommunications infrastructure, and low cost. For example, an experienced programmer in the Philippines earns between $6,000 and $12,000 a year. The research firm Meta Group Inc. ranks the Philippines behind other Asia-Pacific countries because of its political instability and shortage of indigenous IT companies. The Philippines for the past decade has been dealing with militant Muslim insurgents. According to Howard Rubin, an executive vice president at Meta Group, “It has a destabilizing effect on the nation's ability to Project_03 attract and sustain foreign capital investment, and thus poses serious threats to the economy.” However, Vahistha counters that this threat is mainly limited to the southern islands and doesn't affect IT work in Manila. Yet he suggests that companies that offshore work to the Philippines should have a solid business continuity and disaster recovery plan. Moreover, there appears to be a shortage of experienced project managers in the Philippines to oversee projects and more software developers are needed. While the Philippines with its large English-speaking population makes it a logical choice for software development, there are only about 10,000 software programmers nationwide and only 30 companies that focus on writing software. In contrast, Ireland has a population 20 times smaller than the Philippines and has over 800 indigenous software development firms. Besides the time difference, Ondeo Nalco has found that a major challenge has been security. Paul Gould, an IT group leader for global development, explains “There's a perception that if you're going to open up your network to anybody on the other side of the world, you have to be extra secure because of the danger that they'll be contaminated by connections into their network.” As a result, Ondeo Nalco and Headstrong spent a month determining which firewall ports should be open, what level of access people needed, and what work could be completed in Naperville, Illinois versus Manila. SOURCES: Adapted from: Stacy Collett, The Philippines: Low Cost, but Higher Risk, Computer-world, September 15, 2003. Jerri Ledford, Outsourcing to Save Money? Think Again! Computer-world, April 20, 2006. 1. Identify one technology risk and one non-technology risk an organization may encounter when executing the business intelligence warehouse project by outsourcing a component of an IT project to a foreign country. Develop a risk management plan using the RMM to manage these risks. 2. Calculate the total Management Reserve resulting from your risk analysis of the above situation and list it in the RMM as shown in the example provided on Attachment. 3. Explain why these risks are time sensitive. Also explain how you would manage this risk time-sensitivity. 4. Make the following assumptions: (1) A programmer working for Ondeo Nalco in the US earns between $60K and $100K per year. (2) The project start date is April 15th 2016; the technology risk was entered into the RMM on May 1st 2016. The non-technology risk was entered into the RMM on May 15th 2015. (3) The cost of a round-trip air ticket from Chicago, Ill to Manila, PI is $5,000 business class. 5. Make any other reasonable assumptions you need to complete the RMM for these 2 risks. MAKE SURE YOU DOCUMENT AND LIST ALL YOUR ASSUMPTIONS. Risk • Risk • Risk Management Matrix (RMM) Risk Definitions • Risk Identification—What can go wrong? • Risk Assessment—How bad could it be? • Risk Mitigation—What can we do? • Risk Monitoring—How will we track? • Risk Control—When must we decide? • Risk Reporting—How will we communicate? • Risk Training—Is prevention possible? Risk Descriptions Risk Descriptions (cont’d) Risk Mitigation Plan • • The purpose of developing risk mitigation is to obtain a decision to proceed, modify, or cancel the risk mitigation effort by the appropriate decision authority. Objective of risk mitigation is to lower occurrence probability, cost to correct, or both. Specific steps include: 1. Reviewing the risk category (if applicable); impact and probability values; and initial mitigation plan for adequacy. 2. Updating the risk category; impact; and/or initial mitigation plan, as necessary. 3. Determining if the risk mitigation plan should be approved for implementation. Quantitative Risk • • • • • In quantifying risk, specific risk items are identified generally in a two-sentence statement, often including an impact statement based on the probability of occurrence, 0 to 100%. If a risk’s initial probability of) occurrence, (Po), is < 25%, it’s usually NOT worth tracking because it is not very likely to occur. If Po is > 65%, you should assume it WILL HAPPEN in the project and account for it in your project plan. Track risks where 25%