The project balance sheet is like its accounting cousin: a double-entry two-side view of the project. It reflects the sponsor's view and the PMO view and the gap in between
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The Project Balance Sheet
1. Risk Analysis and
The Project Balance Sheet
John C. Goodpasture
Square Peg Consulting
John.g@sqpegconsulting.com
Square Peg Consulting
Copyright 2001, all rights reserved
2. Sponsors & PMs
Sponsors have expectations (scope,
payoff) and make resource
commitments (time and money)
PMs calculate capabilities and capacity
for the specified scope and resources
What happens if the former and the
latter don’t equate?
Somebody has to take a risk!
Square Peg Consulting
Copyright 2001, all rights reserved
3. Every project is a balance…
Resources: time,
Benefits, Investment $, staff, facilities
Quality
Value: Needs for Risk
which Function
stakeholders pay Feature
Convenience
Conformance to “requirements”
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Copyright 2001, all rights reserved
4. Balancing the project
Investor Project Manager
Desired outcomes are Outcomes specified
business driven in charter
Deterministic, limited Resources are
resources estimates
Risk proportional to Risks arise from
expected reward internal & external
Unknowing of sources
implementation Details drive risk and
details resource estimates
Project Equation: Resources committed =
Resources estimated + Project risks
Square Peg Consulting
Copyright 2001, all rights reserved
5. “Risk balances Value with Capacity”
Project Value from Project Estimate from
the Top Down the Bottom Up
Risk
Investor’s
Resource
Commitment Scope
Time
Resources
Management’s Expected Project’s Employment
Return on Investment of Investment
Square Peg Consulting
Copyright 2001, all rights reserved
6. Sponsor’s view of the
project
Business case of
customer needs
and wants
Financial Features
measures & Functions
imperatives Benefits
Milestones for Resources
operations
Organizational
assets committed
Project capacity
Business Risks and capability
respond to value
Square Peg Consulting
Copyright 2001, all rights reserved
7. PMs view of the project
Project
values from
goals and As much risk as is
strategy Risk necessary to close
any “gaps”
Scope & Quality
Time Cost &
Resources
Square Peg Consulting
Copyright 2001, all rights reserved
8. Risk begins with business case
translation to specification
Project Verify deliverables with
Business Case business case
Sample the business Validate specification with
case via elicitation and business case to discover
analysis to develop sampling errors
specification
Requirements
specification has Correct errors and
“sampling errors” baseline
Sampled points of the Requirements baseline
business case Manage requirements
•Identify change
•Evaluate impact
•Approve and apply change
Square Peg Consulting
Copyright 2001, all rights reserved
9. Project Balance Sheet
Project Value Project Implementation
Vision state: Describes the state of the Risk from requirements translation error
organization when the business case is between business case and project plan
satisfied
Risk from misalignment between resources
Business case baseline: Specifies the offered in the business case and the
required benefits, scope of functionality implementation estimates
and performance, resource input, and
timeline for performance and payback Risk from the uncertainty that
requirements may change during the course
Business rules: Specifies the context, of the project
constraints, and imposed rules that govern
the project
Requirements baseline as translated from
the business case into an actionable
requirements specification
Functional releases: Sequence the
satisfaction of the business case
Implementation estimates of scope and
quality, resources, and time
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Copyright 2001, all rights reserved
10. PM’s risk impact chart
Schedule Example
Face Value of Expected EMV of
Project Probability of
Impact of Impact Impact @
Sponsor’s Occurrence
Risky (Face Value x $15K per Day
Expectation (0-100%)
Outcome Probability)
60 days delay 5% 3 days $45K
10 days early 15% 1.5 days ($22.5K)
Deliverables
will be on time On-time 80% 0 days $0K
and within delivery
budget Expected Impact of Identified 6 days $22.5K
Risk
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Copyright 2001, all rights reserved
11. Distribution for schedule example
Probability of Occurrence
0.80
0.15 Expected Outcome
+6 days 0.05
10 days On-time 60 days late
early
Square Peg Consulting
Copyright 2001, all rights reserved
12. Balance sheet view
On-time
delivery,
within cost Manage to avoid 60
Risk
days x $15K = $900
Time Cost &
Resources
Negotiate
for 6 days &
$22.K Scope & Quality
Square Peg Consulting
Copyright 2001, all rights reserved
13. What’s been learned?
Every project employs risk to balance
sponsor expectation with PM estimates.
Project balance sheet is a tool for
capturing the sponsor and PM view of
the same project.
Translating the sponsor view to the
project view is a sampling process that
has sample error. This is a risk source.
Square Peg Consulting
Copyright 2001, all rights reserved