HTML Preview Project Risk Analysis page number 1.
Copyright Notice:
Materials published by Intaver Institute Inc. may not be published elsewhere without prior
written consent of Intaver Institute Inc. Requests for permission to reproduce published
materials should state where and how the material will be used.
Project Risks Analysis: Sensitivity Analysis and
Correlations
Intaver Institute Inc.
303, 6707, Elbow Drive S.W.
Calgary, AB, T2V0E5, Canada
tel: +1(403)692-2252
fax: +1(403)259-4533
www.intaver.com
Identifying which activities have the most affect on the project and understanding how
activities are correlated with each other is important for establishing project priorities.
Our judgment about correlation and causation is affected by a number of biases, such as
illusory and invisible correlations, covariation assessment, and others. Sensitivity analysis
helps to discover correlations within a project.
What Are Correlations And Why Do We Need to Analyze Them?
On January 21, 2005 the state of Maine officially launched its new Medicaid Claim
System (Holmes, 2006). This web-based software system was designed to process $1.5
billon in Medicaid claims and payments per year. However, a problem surfaced within
the first few days: the new system started to mistakenly reject a huge number of claims
from service providers: doctors, hospitals, dentists, and others. By the end of March, the
system suspended (unpaid) 300,000 claims. It soon became clear that the system was
plagued by numerous software bugs. With the huge number of claims rejected, several
doctors were forced to close their doors; others had to take loans to continue operation.
This was only a small symptom of a larger problem. The Medicaid program accounted
for one-third of the entire state budget and, as a result of the software problem, Maine’s
financial stability was in jeopardy. By the end of summer 2005, the system had a backlog
of 647,000 unpaid claims representing $310 million in back payments. It soon became
clear that the problem was due to poor project management, and in particular,
communication between state’s IT team, contractors and business users. One of the most
critical issues was related to the prioritization of the project tasks. The IT staff had
worked extremely hard trying to fix every possible bug without a clear understanding of
what were the most important issues to focus their efforts on. In essence, they had given