Risk Identification Early in Project Lifecycle

Table of Contents

CHAPTER 02: LITERATURE REVIEW1

Investments in IT projects1

Returns in IT Projects1

Detecting Risks with Check Lists3

Detecting Risks with Previous Experience4

Assessing Project Risk4

Measuring Risk and Its Impact5

Using Cost Drivers to Assess Project Risks6

Contingency Based on Risk Assessment6

Addressing Project Risk7

Phenomenological Studies8

Project Failure9

The Cost and Risks of Project Failure10

Project Stakeholders12

Information Systems and Project Management15

IT Risk Measurement18

Multifactor Risk Return Model20

Multifactor Return Generating Process Model21

Idiosyncratic Risk21

Arbitrage Requirement25

Pricing Software Development Risks27

Pricing Customer Adoption Risk28

REFERENCES31

CHAPTER 02: LITERATURE REVIEW

Investments in IT projects

We view IT investments as a composition of investment in Technology Systems (infrastructure and business applications), IT Human Capital (technical and managerial expertise in application development, system integration, application maintenance, and project management), Organizational Processes (IT management processes; business process management, network and system automation), and Data Assets (customer, corporate and business data). This view of IT investments follows through the diverse approaches adopted in prior research to define IT resources and blends well with what practitioners consider as investments in IT assets or IT portfolio (Goel, 2008).

Returns in IT Projects

Research has adapted several measurement forms for examining return from IT investment for different contextual situations such as firm level and process level. Some of these measures include: market value, abnormal return on equity, Tobin's q, market share, return on sales, return on assets, gross margin, inventory turnover, customer service, quality, efficiency, production cost, capacity utilization and coordination cost. Acknowledging that returns from IT investment could be measured in many different forms, depending on the context under study, and considering that the receptiveness of IS scholars to adapt these diverse measures for different contexts is leading to a 'schism' in IT value research, we find it difficult to adopt any single coherent measure for IT return. Therefore, following (Milter, 2008), define IT return loosely as the economic impact on firm performance at both the business process level (internal and external as well) and firm wide level (Milter, 2008).

Research has traditionally viewed risk in IT investments, and especially software projects, as having a negative consequence on success. For example, lack of skilled analysts could lead to poor system design. This notion of risk is also known as the behavioral view of risk, where decision makers associate risk with a probability of an event and magnitude of bad outcome. However, recent IS research considered positive aspect of risk as well, such as an unexpected increase in customer or user adoption could lead to higher market share and offer opportunities for follow-up investments. More recently, IS research examining the impact of IT risk on firm performance and IT risk management view IT risk as ex ante uncertainty of payoffs from IT. This notion of risk conforms to the classical decision theoretic view of risk where managers are concerned about both upward and downward deviations of investment payoffs from expectation (Karuppasami, 2011).

As our research focus is on defining a risk-return model for IT investments that could be used ex ante for investment decision-making, this research views IT risk as the variation in the attainment of IT investment ...