Risk Analysis

Risk Analysis

Risk analysis is a technique to identify and assess factors that may jeopardize the success of a project or achieving a goal. This technique also helps define preventive measures to reduce the probability of these factors from occurring and identify countermeasures to successfully deal with these constraints when they develop to avert possible negative effects on the competitiveness of the company.

Three of the most important risks a software company faces are unexpected changes in revenue and costs from those budgeted and amount of specialization of the software planned. Risks that affect revenues can be unanticipated competition, privacy, intellectual property right problems, and unit sales that are less than forecasted; unexpected development costs also create risk that can be in the form of more rework than anticipated, security holes, and privacy invasions (Messerschmitt and Szyperski, 2004).

Narrow specialization of software with a large amount of research and development expenditures can lead both business and technological risks since specialization does not lead to lower unit costs of software (Rao & Klein, 1994). Combined with the decrease in the potential customer base, specialization risk can be significant for a software firm. After probabilities of scenarios have been calculated with risk analysis, the process of risk management can be applied to help manage the risk.