Introduction

The Project Opportunity and Risk Assessment is designed to support the assessment of project viability before committing the resources required to develop a Project Plan and customer proposal. It is to be completed by the sales representative closest to the customer project under evaluation, with the concurrence of the Project Management organization or equivalent.

The model provides a high-level, “first pass” evaluation of the risks associated with a project. It will help the Customer Sales Team and management determine which opportunities to concentrate on and which risks must be managed to ensure project success. It is meant to provide guidance and assistance in making a bid/no bid decision.
Note: If the Customer Sales Team completes this analysis as part of another process, the Project Manager need not duplicate it here. The Project Manager should instead participate in that analysis and ensure all risks are identified for inclusion in the Project Qualification Report (PQR).

The Process

The process for assessing the opportunity and risk using the Project Opportunity and Risk Assessment involves three basic steps:

Evaluating the opportunity. A series of ten questions on Opportunity Analysis are to be answered, with a score for each to be calculated. The questions have been weighted on a scale of 1 (low weight) to 5 (high weight) in terms of their relative importance to each other. This score is calculated by multiplying the raw score (Opportunity Factor (O)) by the pre-established weight value (W). After each question has been scored, a total opportunity score is calculated by adding the individual question scores. The total is then entered in the space provided for the Total Opportunity Analysis Score.10).

Evaluating the risk.

A series of eleven questions on Risk Analysis are to be answered, with a score for each to be calculated. The score is calculated by multiplying the raw score (Risk Factor (R)) by the pre-established weight value (W). The total risk score is then calculated and entered in the space provided for the Total Risk Analysis Score.

Mapping the opportunity and risk scores to the model.

The total scores for opportunity and risk are plotted on the matrix provided within the model. The location of this score on the matrix helps determine the quality of an opportunity and indicates the level of risk to be managed to ensure project success.

Timing

The questions provided in this tool can be applied to a project at any time during the sales cycle before issuing a proposal to the customer. However, the complete process is intended to be used primarily when the project requirements are defined with such detail that the customer could issue a request for proposal (RFP) or similar instrument. The process may be especially helpful when evaluating an unsolicited RFP. The model has been designed to be completed by a Core Team within a few hours.

Interpreting the Results

After the scores have been mapped on the model’s matrix, the Customer Sales Team and the Project Manager or equivalent can determine the next appropriate step. Normally, a meeting with management is held to review the opportunity.

This meeting should include management representation from each organization that would perform a detailed assessment, develop a Project Plan, and provide input to the customer proposal. These same organizations will ultimately be responsible for project execution if the bid is won.

If the project assessment is unfavorable, the Customer Sales Team, in conjunction with the Project Manager or equivalent, may search for ways to improve the opportunity and/or reduce the risk before presenting the opportunity to management. Alternatively, the Customer Sales Team, with concurrence from the Project Manager or equivalent (and management as appropriate), may conclude the opportunity should be declined.

Use the following outline to prepare a comprehensive Risk Management Plan:

1.0 PROJECT SCOPE

Insert the Scope Statement, or provide a brief summary of the project, including a description of the work to be accomplished, a description of the customer’s goals and objectives for the project, a general description of how the project will be accomplished, and other pertinent information that will provide a good overview of the project.

2.0 RISK EVENT DESCRIPTIONS AND EVENTS

Determine the business and financial risks of the project, and, for each element of the WBS, identify any major risks involved in that element. Complete Risk Event Description and Risk Event Results. Reference or include a copy of the WBS in this section. The process is carried out as follows:

2.1 Identify Risks.

Identify business and financial risks associated with the project. For each element of the WBS, identify any major risks associated with that element. For more information on risk identification, refer to the guide Risk Management. Complete a Risk Event Description form for each risk event identified, or use another method of documentation.

2.2 Analyze Risks and Calculate the Weighted Cost Impact.

In analyzing the risks, make the assumption that the risk event identified will occur. Think in terms of the remedial activity that will need to take place to rectify the occurrence of the risk event. Using the same guidelines used in calculating the cost of the WBS elements, calculate the rectification cost (impact) without any form of “padding” or risk adjustment. Analyze the risk event and apply a weighting to the impact on a scale of 1 through 5 as follows:

Weight 1: Has little potential to cause disruption of schedule, costs, or performance (quality). Increase the impact by 5 percent.
Weight 2: May cause minor disruption of schedule, costs, or performance (quality). Increase the impact by 10 percent.
Weight 3: May cause some disruption of schedule, costs, or performance (quality). Increase the impact by 15 percent.
Weight 4: May cause major disruption of schedule, costs, or performance (quality). Increase the impact by 20 percent.
Weight 5: Could cause significant serious disruption of schedule, costs, or performance (quality). Increase impact by 25 percent.

Finally, estimate the probability of the event occurring as a percentage (between 0.01 and 0.99), and calculate the weighted cost impact as follows:

(Cost Impact + Cost Impact Increase) x Probability of Occurrence = Weighted Cost Impact
Example: For a risk event with an estimated cost impact of $2,750, a weight of 4, and probability of occurrence at 85 percent:

($2,750 + $550) x 0.85 = $2,805

2.3 Identify High-Risk Events. If a specific risk event has greater than 75 percent probability and/or the weighted cost impact is greater than 10 percent of the total project cost, the risk event is by definition a high-risk event. For each high-risk event, create a separate and unique WBS element that identifies the work required and the weighted cost impact required to rectify the occurrence of the high-risk event. This WBS element must be flagged as a high-risk event element as distinct from a normal WBS element.

2.4 Develop Mitigation Strategies. Determine potential strategies for mitigating the risk—either avoiding it, controlling it, or transferring it to another party. Assuming the risk consequences is also a potential mitigation strategy, but it is the least desirable. Evaluate the potential cost impact of the mitigation strategy and reflect that impact in the risk budget.

2.5 Establish the Risk Budget. Each high-risk event will become a line item in the risk budget. The other risk events should be accumulated and used to establish the managerial reserve. An amount for contingency, or those events and circumstances not anticipated in any way, should be calculated based on experience. These amounts together become the risk budget portion of the Project Budget. The risk budget should be margined at the same rate as the Project Budget to establish the budget at selling price. This then is presented to the customer in the proposal as the project price.

3.0 RISK REASSESSMENT PLAN

Identify the major reassessment points for this project, and ensure that those reassessment points are identified in the Project Plan. At minimum, high-risk events should be reassessed at the following times:

Whenever major changes occur in the project or its environment
Before major decision milestones
Periodically, according to a predetermined schedule

4.0 RISK MANAGEMENT TIMETABLE

Indicate the timetable for risk management activities. Ensure that the key events are also reflected on the Project Schedule. Major milestones include the following:

Completion of risk identification and analysis
Risk prioritization
Completion of mitigation strategy development
Incorporation into Project Plan and WBS
Key reassessment points
Documentation of risk results