How variable are your estimates? Could material prices change much next year? If so, how much difference will that make? If your profit is only 2% and costs go up by 1%, then half your profit is gone. Do some what-if's: what if each risk happens, how much difference will it make? Take the more robust solution rather than the risky one.
- Next, I want to say something about sensitivity,…which is a bit like risk, only subtly different.…Sensitivity is the risk that your estimates are wrong,…and to what degree that matters.…For example, you might have estimated…the profit to be $1,000,…but maybe it could be anywhere between…990 and 1,010.…Or, between 500, and 1,500.…
And these are both averaging a thousand,…but one is much more spread than the other.…Or, you might have estimated the risk of failure…being 10%, but is that figure pretty accurate,…or is it really somewhere between zero and 25%?…And really, you just don't know which.…So, you've got a range with every number that we ever use,…and sensitivity is partly how big that range is,…and partly, the important question…of whether that range matters.…
If we might sell between 900 and 1,010,…it probably doesn't matter which,…and our plan is pretty safe.…But if it's between 500 and 1500,…then we could be anywhere from bankrupt to brilliant.…This is obvious, but some examples of sensitivity aren't.…In some cases, if you sell 900 instead of 1,000,…
Lynda.com is a PMI Registered Education Provider. This course qualifies for professional development units (PDUs). To view the activity and PDU details for this course, click here.
The PMI Registered Education Provider logo is a registered mark of the Project Management Institute, Inc.
- Identifying the real problem
- Generating possible solutions
- Boosting your creativity
- Using your intuition and logic
- Selecting the best solution
- Considering implementation