Select four of the following statements. For each, identify the cause, the risk, and the effect. If a given statement does not include one or more of these elements, expand the statement to include them.
1.The project could fail because the cost of a key component has increased and we could build a product that does not achieve its production cost target.
2.We may not be able to maximize employee sales efforts since their morale toward the new product is so low.
3.We have no experience in applying for an export license.
4.We might go significantly over budget because we have no formal change management system in place to track the costs of changes in the scope of work agreed upon between the customer and the supplier.
5.There could be an early major snowstorm when we’re planning to lay the foundation.
6.The testing phase will need to be extended because the supplier does not due design reviews.
7.If the city planners are late as they usually are, we won’t be able to get the permits in time to start excavation.
8.With their holiday bonuses, we know that the majority of the carpenters will probably take time off before the New Year.
9.We might be late because the materials could be delivered to the site out of sequence.
10.Our policy is to accept the lowest-cost bidder. This always leads to rework, dissatisfied customers, and delays in delivery.
You are planning to make modifications to an existing application. You have identified:
30% probability of delay of receipt of resources – cost $50,000.
20% probability that the resources will be $10,000 cheaper than planned.
25% probability that there will be a problem integrating with existing software, cost to fix $3,500.
30% probability that the development may be simpler than expected, savings $2,500.
5% probability of a design defect causing $5,000 of rework.
Calculate the net expected value for the project risks and opportunities cited above. How much should you plan for your contingency reserve budget based on the above? You must show all of your calculations. How much would you allocate for the management reserve? What are your assumptions about these reserves?