Risk Management Plan for A&D High Tech E-Commerce Project

Introduction to the Plan

This project involves a company named A&D High Tech, which operates within the computer products industry and sells computer products, accessories, and services to consumers and small businesses. The organization found itself at a crossroads due to the fact that it had yet to enter the e-commerce segment of its industry. After identifying this issue with the help of a consultant, A&D High Tech's executive board committed to entering this segment as quickly as possible. The project was already in motion; however, the organization's busiest season was approaching fast, and the company called upon its top project management talent to recommend whether crashing the project schedule was feasible.

The two primary organizational objectives A&D is trying to achieve are increased sales and improved organizational effectiveness. An online store would give the organization greater consumer exposure while simultaneously opening up new markets. With the online store connected to the organization's enterprise resource planning (ERP) software on the backend, the system would also act to reduce costs while streamlining key business processes and increasing profit margins.

In designing the project, the company chose to build rather than buy an off-the-shelf platform. This decision was driven primarily by the need for customization, as an off-the-shelf system would not have been able to accommodate all of the requirements. The original project closure date was projected for sometime in May of the following year. However, since the executive directors were anxious to get the site up and running before the peak Christmas season, they tasked their top project manager with determining whether crashing the schedule was possible. Since most of the programming is outsourced through a third-party vendor, it seemed reasonable to expect that the schedule could be significantly reduced by simply adding more people to the project. However, this is not always the case — sometimes adding more people can actually extend the schedule rather than compress it. This risk management plan examines all relevant potential project paths for the online store and makes recommendations regarding feasibility.

A&D High Tech operates in the PC industry, with its primary business being the sale of computer products, accessories, and services to consumers and small businesses. A&D's heritage began in Lincoln, Nebraska, where Ted Walter opened his first store in 1988. The company's custom product lineup was considered innovative in its early years, as it was among the first organizations to enter the personal computer industry. Walter emphasized friendly customer service, and this sentiment became embedded in the organizational culture — values deeply aligned with the culture of the Midwest, where Walter had resided his entire life.

Company Background

A&D's revenue stream grew at a consistent pace and approached $400 million for fiscal year 1998. The company was principally a regional player, with over 90% of sales coming from customers in regional areas. However, Walter had been strategically positioning the organization to distribute nationally. Sales were composed predominantly of revenue from retail outlets in shopping malls across the Midwest and via phone orders processed by a 50-person call center located in Lincoln.

Before the implementation of the organization's ERP system, sales orders at the call center were written on paper and then manually passed to order entry clerks. This process added considerable time to order entry, caused delayed shipments, and resulted in poor order accuracy. As a result, sales representatives frequently had to contact customers to correct errors or suggest alternatives due to limited inventory visibility. On average, approximately one-third of orders required customer callbacks, compared to an industry average presumably below ten percent. In 1997, A&D implemented its first enterprise resource planning software.

The software provider A&D selected was J.D. Edwards, and the implementation was a success. The ERP system significantly reduced operational costs and errors associated with order processing, and also reduced staffing costs tied to manual data entry. The system was later upgraded to include a customer relationship management (CRM) module. This same system will be integrated with the backend of the online store's order processing. Executive leadership wanted online order processing handled in a manner consistent with all other order entry methods, making this a top priority in the online store's project requirements.

Risk is defined as an event that has a probability of occurring and could have either a positive or negative impact on a project should that risk materialize (Northrop Grumman Corporation, 2007). Project risk management is one of the most difficult project components to plan for, especially when the project is running on a significantly compressed schedule. In this case, the fundamental consideration is whether the costs of crashing the project so dramatically exceed the benefits of completing the project before the peak Christmas sales cycle. If the project has a significant chance of falling behind the crash schedule, or if the associated costs are too great, the reduced schedule may not make financial sense. Additionally, a trade-off between quality and schedule may pose significant threats to the viability of the finished product. The largest conceivable risk is that the organization increases its budget and resources substantially to meet the deadline and still fails — bearing both the cost of the crash schedule and the lost revenue from not having the website live during the peak season.

Risk Planning

One study that surveyed over 800 IT project managers found that 62% of software projects failed to meet the planned schedule (Asay, 2008). Other data cited suggests that:

Given that the discipline of IT project management has had ample time to mature, these figures indicate that many projects today still produce the same types of results seen when the profession was in its infancy. Recent studies have also indicated that among the PMBOK Guide's nine Knowledge Areas, risk planning is among those with the greatest impact on effective project management (Zwikael, 2009).

Therefore, in this particular project, risk management may be the most important component of the entire effort. It is critical that the project manager prepare a risk management plan that accurately depicts the challenges associated with crashing the project, so that the project's champions can base their decision on the most reliable data available. Accelerating the schedule will undoubtedly require significant increases in budget and resources; thus, an accurate estimate — including all identified risks — is needed to compile an effective cost-benefit analysis in light of the new requirements. If there is reasonable doubt that the project can be crashed feasibly, management may want to pursue a different course of action. The top-rated risks identified in the literature are summarized in Table 1 below (Tesch, Kloppenborg, Frolick, & Mark, 2007).

Table 1 — Risks Overview (Tesch, Kloppenborg, Frolick, & Mark, 2007)