One of the most useful risk management tool in the financial markets is an option. It provides the ability to hedge exposures or to take a position in an instrument without fully commiting oneself.
Options can be used to manage risk on IT projects as well.
Rather than chosing a single path for the project, a number of paths (design decisions etc.) can be followed. With each option, it is important to understand when it will expire, i.e. it can no longer be exercised. The aim is to make decisions about your portfolio of options understanding when they should be exercised and when they should be allowed to lapse. At some point you need to commit to a single path, however options delay the date on which you need to fully commit to a single path. this means you will have more time during which information can arrive which may have a big influence on your decision as to which option to pursue.
The use of options is 'simple' in this case. First identify all the options available. Then for each option, calculate the cost of keeping the option available (known as the premium in financial options) and the date on which the option matures. Then track your portfolio of options making sure you make active decisions over which to exercise and which to discard.
The maturity date for an option of this kind is determined from the deadline and then working backwards to determine when the decision is needed by.
Making decisions early to give the apperance of progress reduces the number of options available. This makes managing the risk on the project harder.
Posted by chrismatts at December 22, 2003 12:33 PM