Expected Monetary Value and Project Scenario of Software Development

By Raul Bernardino

Introduction:

Today applications are designed in the flexible way such as they have a cross platform and scalable capabilities in order to accommodate or to be able to adjust and adapt according to the business requirements and needs. Therefore, to modify any existing applications, we should consider several risks, settle certain conditions and plan for non-interruption of the business operation before we are going to decide the revision of the application and implement them into the existing system.

The current application according to the scenario, it should be up and running as it is normal operation while we are going to develop the adjustment of coding of the application itself in the parallel ways.

The adjustment of the application has to be in line with the stakeholder’s demands or requests, in which is being identified during project meeting and or during the uses of the application. The request features are copping in the global sets and not to answer any individual’s needs but it should be on group level, departmental level, and or institution level.

Conditions:  First of all, the nature of the business operation, it has to remain and operating as a normal condition. Second, there is no business disturbing during the development of the coding for adjustment in the application. Third, the qualities of the adjustment features have to be tested and certified before it is implemented or integrated in to the business operation system. Finally, project manager has called the meeting, it is including the involvement the stakeholders, the business sponsors, the risk management team for identifying all risks that is may have the impact either direct and indirect to the adjustment of the features in the software application project, and the business sponsor need to signed off the project charter in order to initiate or start the project.

Some Terms and Definitions:
Business Analysis (BA): A BA is to develop business solutions which are effective and efficient for the organization’s IT system investments. The business analysis involves problem investigations, business opportunities, systematic analyses, documenting the user requirements, support throughout the development of solutions, testing the product and ensuring the implementation meets user requirements.

 System Analysis:  A systems analyst designs new IT solutions to improve business efficiency and productivity. The work might be for an external client or an internal client (such as a department within the same organization).  Working closely with the client, analysts examine existing business models and flows of data, discuss their findings with the client, and design an appropriate improved IT solution. They act as the liaison between the client and the developers.

Business sponsor:  The business sponsor is the owner or donator of the project in which is giving the maximum support and support the fund for the implementation of the project.

Project Manager: the project manager is a team lead or highest responsibility of the project whereas to make sure the success of the implementation of the project in timely manner and cost effective manner.

Stakeholder: the stakeholder is staff or individuals that use the application, department or the institution whereas have affected the implementation of the project application.

Project Charter: the project charter is a document of project initialization whereas to define the project scope, objectives, cost, and other resources that are involved, the time deliverable, and the project manager authorities and its roles. This document usual signed by business sponsors and project manager.

Risk Management: the risk management is tools that help risk manager on how to manage all risks that may be happen before, during, and after the implementation of the application adjustment project.

Management Reserve (MR): the management reserve is not an overhead cost or miscellaneous cost. It is a variance cost that can be happen in the authorized scope of the work or it is called unknown program during the implementation of the project.

Expected Monetary Value (EMV): The expected monetary value is a tool to counts the qualitative risk analysis. This is a recommended tool and technique for the risk management in the project to do a quantitative risk analysis.    How to utilize this tool? First, we have to assign the probability of risk that would be occurred. Second, estimate and assign value of monetary impact to the risk. Third, is to multiply the probability and monetary value.

One concrete example: For instance, we are planning to revise the current application and we will be doing several adjustments of coding in the application with identified risks as follows:

• 30 percent of probability will be delaying of the resources to be received and involve the cost of $50,000
• 20 percent of probability that the resources will be cheaper and the value is $10,000
• 25 percent of probability that problem will be occurred during the integration of the system and value would be $3,500 for fixing
• 30 percent of probability that will be save the money of the $2,500 during development face
• 5 percent of probability redesign and the value of cost involvement is $5,000

The calculation of the Expected Monetary Value (EMV) as follows: 

• 30 percent probability multiply by monetary value =0.3*(50,000) = -$15,000, the cost value is negative because it is delay of the delivery resources
•  20 percent probability multiply by monetary value = 0.2*10,000=  $2,000, the cost value is positive because it is cheaper than it is planned or budged
•  25 percent probability multiply by monetary value =.25*(3,500)= - $875, the cost value is negative because there is a problem of the integration system
• 30 percent probability multiply by monetary value=.3*2,500= $750, the cost value is positive because the project has saved the money
• 5 percent probability multiply by monetary value =.05*(5,000)= - $250, the cost value is negative because there would be redesign the system

Total EMV           = ($15,000) + $2,000 + ($875) + $750 ($250)

         = ($13,375) or -$13,375

If the initial total estimation cost for this project assumes that is $100,000 within 40 working days, then the management reserves (MR) will be 10 percent on the top of initial cost. The high risk activities would be applying another 20 percent of additional value on the top of the initial cost.

The allocation budget for this application project and without including the EMV is = 100,000 + 100,000*0.2 + 100,000*0.1 = $130,000

Therefore, total project cost is $130,000 + $13,375 (EMV) = $143,375

Annexes:

-         http://www.brighthub.com/office/project-management/articles/56539.aspx?image=32371

-         http://www.brighthub.com/office/project-management/articles/51997.aspx

Conclusion: I do aware that from the scenario above the project application has no initial cost estimation. Base on the experience, that I have in dealing with application revision in which is taking about 30 working days to complete with the similar tasks and that is including quality test. Therefore, I am confident that this project will be success within time line and cost.

References List:

·        PMBOK® Guide – A Guide to the Project Management Body of Knowledge - Fourth Edition. (2008). Project Management Institute

·        CMPPRI_WK8_Lecture_notes

·        Calculating Expected Monetary Value (EMV)  [Online] Available from:   http://www.brighthub.com/office/project-management/articles/48245.aspx#ixzz1EpLB0HRJ (accessed date: March 2, 2011)

·        Stakeholder definition [Online] Available from:  http://www.businessdictionary.com/definition/stakeholder.html (accessed date: March 2, 2011)

·        Project charter [Online]. Available from:  http://en.wikipedia.org/wiki/Project_charter (accessed date: March 2, 2011)

·        Management Reserve (MR) [Online]. Available from:  https://acc.dau.mil/CommunityBrowser.aspx?id=241469 (accessed date: March 2, 2011)

·        Responding to Negative Risks in Risk Management Strategies [Online]. Available from:  http://www.brighthub.com/office/project-management/articles/48016.aspx (accessed date: March 2, 2011)

·        Protect Your Project Against Cost Overruns [Online]. Available from: http://www.brighthub.com/office/project-management/articles/56539.aspx  (accessed date: March 2, 2011)