Read the opening and closing cases. What would you do if you were Cliff? What wo

Question

Read the opening and closing cases. What would you do if you were Cliff? What would you do if you worked for Cliff?

opening case:

Cliff Branch was the president of a small IT consulting firm that specialized in developing Internet applications and providing full-service support. The staff consisted of program- mers, business analysts, database specialists, Web designers, project managers, and others. The firm had 50 full-time people and planned to hire at least 10 more in the next year. The firm also planned to increase the number of part-time consultants it used. The company had done very well during the past few years, but it was recently having diffi- culty winning contracts. Spending time and resources to respond to various requests for proposals from prospective clients was becoming expensive. Many clients were starting to require presentations and even some prototype development before awarding a contract.

Cliff knew he had an aggressive approach to risk and liked to bid on the projects with the highest payoff. He did not use a systematic approach to evaluate the risks involved in various projects before bidding on them. He focused on the profit potentials and on how challenging the projects were. His strategy was now causing problems for the company because it was investing heavily in the preparation of proposals, yet winning few contracts. Several employees who were not currently working on projects were still on the payroll, and some of their part-time consultants were actively pursuing other opportunities because they were being underutilized. What could Cliff and his company do to better understand project risks? Should Cliff adjust his strategy for deciding what projects to pursue? How?

closing case

Cliff Branch and two of his senior people attended a seminar on project risk management where the speaker discussed several techniques, such as estimating the expected mone- tary value of projects and Monte Carlo simulations. Cliff asked the speaker how these techniques could help his company decide which projects to bid on, because bidding on projects often required up-front investments with the possibility of no payback. The speaker walked through an example of EMV and then ran a quick Monte Carlo simula- tion. Cliff did not have a strong math background and had a hard time understanding the EMV calculations. He thought the simulation was much too confusing to have any practi- cal use for him. He believed in his gut instincts much more than any math calculation or computer output.

The speaker finally sensed that Cliff was not impressed, so she explained the impor- tance of looking at the odds of winning project awards and not just at the potential prof- its. She suggested using a risk-neutral strategy by bidding on projects that the company had a good chance of winning (50 percent or so) and that had a good profit potential, instead of focusing on projects that they had a small chance of winning and that had a larger profit potential. Cliff disagreed with this advice, and he continued to bid on high- risk projects. The two other managers who attended the seminar now understood why the firm was having problems—their leader loved taking risks, even if it hurt the com- pany. They soon found jobs with competing companies, as did several other employees.

Explanation / Answer

I was cliff then I would learn about managing risks and tools provided to me. I also make a group of knowledgeable and experienced employee to find risks in various projects. I will make a systematic approach to solve the issues.

I worked for cliff I would show him different tools which identify risks. I used EMV expected monetary value to evaluate the various potential projects to bid on from expected values of decision tree.

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