Every time a software project is started, a dance starts: the dance of project approval. Decision makers and project delivery team take different positions at a table, some ask questions, others do their best to respond, given that these questions are typically about the future. Some of the questions are so much into the future that it would be foolish to pretend we know the answer. Yet we do.
This was the main lesson I learned in my life as a project manager: you have to learn how to dance.
How to dance…
In the dance-like meetings there are 3 types of people:
- A) Those that pretend to know the future
- B) Those that know they can’t know the future
- C) And those that don’t want to know the future
The question below is only valid for the people in category B). The other two categories are beyond help from me or anyone else.
What is the likelihood this project will fail?
When a project starts, the best question anyone can ask about the project is this:The most important question: What is the likelihood this project will fail? Why is this question important?
- First, if you don’t have an answer to this question you are either in the first or third category of those listed above, and there’s nothing I (or anyone else) can do to help you.
- Second, by discussing the possibility of failure we are actively looking for possible causes of problems for the project (rule 1 of risk management).
- Third, having an actual conversation about the failure probability of a project will give you an indication of the “value at risk” for the project.
For example: let’s say the project budget is about 100K dollar, and to make it a worthwhile investment we would need to make it between 120K and 90K in total cost (i.e. if it is likely it will cost more than 120K you should not do it). If the answer to the most important question is: 50/50, then you know that the project is not worth doing. It has very little chance of delivering the necessary value to justify it’s existence, in fact: it is likely it will be above 100K and up to as much as 200K in cost. However, if the answer is that we are 80% confident we will deliver the project on
timecost, then the project is worth pursuing (although with some strict scope control in place) because the expected worst case scenario would be a total cost of 120K dollars (the 20% margin implicit in the confidence above). In practice an 80% confidence means you expect the project to cost up to 120K (100K + 20%) in the *worst* case.
In a later post I’ll explain how we can answer this most important question using the #NoEstimates approach. For now, let me know what you think of the question and the concept of “value at risk” above.
Definition of Value-at-risk [PDF]: “value-at-risk summarizes the expected maximum loss (or worst loss) over a target horizon within a given confidence interval”
Note: A special thanks to @galleman for the idea of the 3 categories of people from which I derived the 3 categories I present in this post.
Photo credit: Steven Depolo @ flick