3.5
Work Breakdown Structures
FIGURE3.5-1Strategies Work Breakdown Structure in a Matrix Format AlignmentEstablish New MatrixGenerate IncomeReduce CostsReduce Head CountMarket Beachhead Desktop and NotebookAdd build-to-orderOutsource customerOutsource customerAdd build-to-order Computerscapabilitysupport to Indiasupport to Indiacapability Specialty Computers (PDA,New leading-edge Pocket PC)pocket PC Servers andMove European plants Networksto China Outsource customerOutsource customer Printers support to Indiasupport to India Build new plant DisplaysAdd plasma line in Mexico Develop newOutsource surveys and Other advertising programR&D for packaging marketing research
STRATEGIC INITIATIVES S T R A T E G I C B U S I N E S S U N I T
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The vertical WBS represents strategic business units (SBUs) or product lines. Here it is assumed that each SBU will be aligning its projects with the various strategic buckets. The horizontal WBS represents four business strategies.
Each proposed project is placed in the matrix to show align- ment with an SBU and a strategic bucket. Note that it is possible to have a project support more than one strategy. In this example, we show two SBUs with plans to outsource customer support. This tac- tical initiative (to be conducted jointly by the two SBUs) supports two strategies: “Reduce Costs” and “Reduce Head Count.”
The strategies WBS serves as a visual display of how projects are aligned with SBUs and strategic buckets. If desired, the project boxes can be color-coded to distinguish proposed projects from ap- proved projects, and additional data can be added (for example, ranking scores, internal or external client, or internal or external resources).
The matrix-style display also provides a visual indication of which strategies are not being supported and which SBUs are not participating.
Figure 3.5-2 presents the strategies WBS in a bubble chart for- mat. This chart contains all of the information as the matrix in Fig- ure 3.5-1, plus data on the size (net present value) of each of the candidate projects. Through the use of bubble sizing and color, such a chart can present up to four aspects of the data (x-axis, y-axis, bubble size, and bubble color).
A WBS for Risk
Using the WBS approach for risk works even better than the SBS.
In the example provided in Figure 3.5-3, we use the WBS primarily as a structured checklist.
At the first level of the risk WBS, we list seven categories for risk consideration: time, people, costs, deliverables, quality, contract, and market. (Obviously there can be others.) For each of these categories, we list any areas where there could be a risk issue. For instance, under the category of cost, we might ask, “Are there any risk issues
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associated with escalation, estimating errors, penalty exposure, or ex- change rates?” These are the areas where issues often arise that can upset the cost projections developed to support the project proposal.
In developing a cost figure, we assume a number for escalation.
In the risk assessment exercise, we have to ask, “What is the range of possible escalation on items that are sensitive to such escalation?”
Then we ask, “What is the effect on cost?” We would also probe the project estimating data, looking for areas that might be sensitive to an estimating error. Is this a risk item?
Is there a penalty condition in the contract? What risks to cost (or income) does this present? Are we dealing with multiple cur- rencies? Is there a risk to cost (or income) because of unexpected exchange rate changes? I have experienced a major international project where all aspects of the project were completed with great success and the firm lost money on it because of significant and damaging changes in the exchange rate.
FIGURE3.5-2 Strategies Work Breakdown Structure as a Bubble Chart
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WORK BREAKDOWN STRUCTURES FOR RISK AND STRATEGIES 119
Schedule Delays Force Majeure TIME
Changes Shortages Labor Strikes PEOPLE
Skills Deficiency
Escalation Estimating Errors COSTS
Penalty Exposure Exchange Rates
Probability of Technical Success Component Issues DELIVERABLES
Unproven Design
Performance Warranty Exposure QUALITY
Subcontractor Items
Lack of Clarity Disputes CONTRACT
Subcontractor Failures Funding
Probability of Commercial Success MARKET
Window of Opportunity RISK WBS
FIGURE3.5-3 Risk Breakdown Structure Diagram
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Using the WBS as a Checklist
There’s a good chance that your project does not have exchange rate or penalty exposure. No problem! You just cross that off the checklist that the risk WBS represents. It is much easier to start with a list of all possible items and to delete those that do not apply rather than start out with a blank sheet of paper (or a blank screen) and try to think of risk items.
Templates can be developed for each type of common project.
The proposal manager deletes items that don’t apply and adds items that are unique to that project. Actually, even better than deleting nonapplicable items is to mark them N/A.This serves as an audit trail, showing that the item was considered.
Some of the second-level items can easily belong in more than one place. This is not important. What is important is that they show up somewhere and are not overlooked.
Assessing and Mitigating Risk
On each of these second-level items, the first question is, “Does it apply?” If the answer is yes, then describe the potential risk event.
For each event, you then need to assess the potential effect on schedule, cost, resources, deliverables, technical objectives, and commercial objectives. The potential effect is the product of two estimates. First, what is the probability that the event will occur?
Second, what is the impact of the event if it does happen?
Finally, you consider options for containing the risks. Look for options to reduce the probability of risk occurrence and minimize the impact of risk events should they occur.
Steps in Dealing with Risk Issues
1. Determine the probability of the event.
• Consider the ability to reduce probability.
• Can you insure, find an alternative, or reduce the risk?
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2. Determine the impact of the event.
• Consider the ability to reduce the impact.
• Can you insure, find an alternative, or reduce the risk?
3. What is the cost to mitigate the risk?
4. What is the ability to absorb the impact?
• Consider schedule contingency, cost contingency, and the design margin, for example.
5. Can the impact be shifted to others?
• Consider cost plus, extras, or that the client or sponsor might accept a lesser product.
Summary
• More people have written about risk management than have practiced it. Risk management is a way of dealing with uncer- tainty in projects. Every project has some degree of uncer- tainty. Therefore, every project requires risk management.
➤ Risk assessment and management (RAM) requires a struc- tured, proactive approach.
➤ A risk WBS is a valuable element of a structured RAM system.
• An “accurate estimate” is an oxymoron.
➤ How reliable is your information?
• How sensitive is the project to the risks?
➤ What is the ability to absorb impacts? For example, being late for a dinner reservation can be tolerated. Being late for a cruise ship departure cannot.
• Avoid redundant or cumulative contingency.
➤ Contingency is important. Without it, you will finish late and over budget. However, there is a tendency to pile on contingencies so that they are redundant. To avoid this,
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consider shared contingency. Apply contingency to groups rather than individual items. For instance, apply schedule contingency for a string of tasks rather than to each task.
Apply cost contingency to work packages, not individual line items.
• A guarantee against all risk may not be practical or economi- cally feasible.
• Risk is dynamic.
➤ The probability and impact of risk can change as the project progresses. Consider the time dimensions of risk and when to address the risk issues.
• Maintain a risk issues directory.
➤ Log all risk items. Identify a responsible party for each risk issue. Maintain an audit trail of all communications and actions. Flag open risk items.
• Don’t forget the big picture.
➤ Consider risk issues at the project level. How well is the organization situated to do this project? What is the or- ganization’s risk culture? What risk guidelines have been established at the strategic level?
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