Use Forecasting Basics to Predict Future Conditions

Basic terminologies of time series and forecasting can be difficult to understand. There are four basic learning points:

1. The definition of forecasting
2. Forecasting as a business and communicative process (not a statistical tool)
3. General definitions used in forecasting (regardless of statistical tool)
4. The statistical/mathematical techniques

Becoming Aware of the Broad View of Forecasting: Overview – Applications and Basic Steps

Forecasting is the prediction of future events and conditions and is a key element in service organizations, especially banks, for management decision-making. There are typically two types of events: 1) uncontrollable external events – originating with the national economy, governments, customers and competitors and 2) controllable internal events (e.g., marketing, legal, risk, new product decisions) within the firm.

The need for forecasting stems from the time lag between awareness of an impending event or need and the occurrence of that event. Organizations constantly try to predict economic events and their impact.

The following are a few applications for forecasting modules:

◈ Forecasting utilization rates for credit cards: build a model based on historical data and use the model to score a current credit card portfolio to determine utilization rates.
◈ Model loss rates of a group of home equity lines of credit as a function of time.
◈ An independent system operator, organized for monitoring the electrical grid, has a need to predict electrical usage – the volatility of the daily usage can be thought of as a blend of day-ahead-market volatility and monthly volatility, where the month can be one or more months forward.

There are some basic steps for creating a forecast:

◈ Define the problem. How will the forecasts be used, who needs the forecast and what is the voice of the customer (VOC)?
◈ Gather the necessary information by obtaining historical (mathematical) data and utilizing the accumulated judgment and expertise of key personnel.
◈ Determine what graphical plots will best benefit management and design a preliminary analysis. Include descriptive statistics.
◈ Choose and fit models by using and evaluating a forecast model for decision making. Forecast errors and management response.

Forecasting System

A forecasting system consists of two primary functions: forecast generation and forecast control. Forecast generation includes acquiring data to revise the forecasting model, producing a statistical forecast and presenting results to the user. Forecast control involves monitoring the forecasting process to detect out-of-control conditions and identifying opportunities to improve forecasting performance. Figure 1 shows a visualization of a forecasting system and process.

Figure 1: Forecasting System

Forecasting Terminology

There are a number of common terms when discussing forecasting models:

◉ Point forecast: a single number that represents the best prediction (or guess)

◉ Prediction interval forecast: an interval (or range) of numbers that the actual value will be contained within – provides the “best” and “worst” case estimates of forecasts

◉ Out-of-sample (ex-ante forecasts), cross-sectional and time series data: refers to data used to validate the forecasting model and compares forecasted values to the out-of-sample data. Conversely, in-sample data refers to the data used to construct the model. Users should fit the model to the in-sample data.

◉ Out-of-sample data selection: data sets used to validate forecasts can be obtained in several ways:

     ◈ Hold out x percent of most recent (rule of thumb is 10 percent) – usually for longitudinal data

     ◈ Hold out x percent but randomly throughout the entire data set – usually for cross-sectional data

     ◈ Use all data and wait for future values:

◉ Cross-sectional data (regression techniques) where all observations are from the same time

◉ Time series data (signal/noise techniques): a chronological sequence of observations

Forecasting Measures of Errors

In any forecasting, it is the accuracy – or “goodness of fit” – of future forecast(s) that is most important. There are three commonly used statistical measures used in forecasting: 1) mean absolute percentage error (MAPE), 2) mean absolute deviation error (MAD or MADeviation) and 3) predicted/mean squared deviation error (PMSE or MSDeviation).

If Yt is the observed value at period t and Ft is the forecasted value at period t

Figure 2: Forecasting Formulas

Table 1: Examples of Forecast Error Measures

Period	Observed	Forecast	Abs Error	% Abs Error	Deviation2
1	138	150.25	12.25	8.9	150.06
2	136	139.50	3.5	2.6	12.25
3	152	157.25	5.25	3.5	27.56
4	127	143.50	16.5	13.0	272.25
5	151	138.00	13	8.6	169.00
6	130	127.50	2.5	1.9	6.25
7	119	138.25	19.25	16.2	370.56
8	153	141.50	11.5	7.5	132.25
Totals			83.75	62.12%	1140.19

Figure 3: Time Series Patterns

◉ Time series patterns: common patterns are called horizontal (stationary), seasonal, cyclical, and trends

◉ Adjustments by number of days: some of the variation in a time series may be due to variation in the number of days (from 28 to 31) per month (e.g., trading days). Use the following formula to make this adjustment before doing any forecasting.

Figure 4: Formula to Adjust Days

Adjustments by inflation: a cause of variation that affects time series is the effect of inflation.When forecasting the price of a new SUV (or car), it is essential to take into account the effect of inflation, as a $80,000 SUV this year is not the same as a $80,000 SUV 10 years ago. By using the equivalent value in the year 2007, for example, the data are then directly comparable and forecasts will have one less source of variation.

◉ Adjustments by population: population change is another source of variation. When forecasting the number of public transport users in a city, it is preferable to take into consideration the effect of population changes. In this case, the data fluctuates based on the total number of people in the city. Rather than forecasting the total number of public transport users, it will be more accurate to forecast the proportion of people who are public transport users.

◉ Stationarity: this refers to the stability of a process’s mean and variance across time. If there is no growth or decline in the data, the process is said to be stationary in the mean. If there is no obvious change in the variance across time, the process is said to be stationary in the variance.

◉ Autocorrelation: this is a measure of how consecutive observations are related. The observation Yt-1 is described as lagged by 1 period. Similarly, it is possible to compare observations lagged by two periods, three periods, etc.

Forecasting Methods – Trade-Offs

There are many factors to consider when choosing a forecast method. Two major considerations are cost versus risk.

Figure 5: Cost Versus Risk

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Six Sigma Tools and the Eight Keys to Risk Management

Enterprise risk management (ERM), a framework for managing risk across an organization, improves an organization’s ability to accept the right amount of risk to capture strategic opportunities. ERM is made up of eight components, each of which can be supported by the tools and methods of Six Sigma.

1. Internal Environment

The business vision, coupled with leadership’s personal examples, determines the values of the organization and the behaviors of its workers. This organizational culture establishes employees’ receptivity to change. Equal attention must be focused on the people side of change, as well as the tactical tools of process change.

The behaviors, attributes, ethical values and integrity of the process workers all contribute to their perceptions regarding risk and controls. Likewise, their view of their level of authority and responsibility – along with organizational commitment to human capital development – all have an effect on commitment levels and compliance risk management. Using Six Sigma change management tools can aid in creating this type of culture that looks on process improvement in a positive light.

2. Objective Setting

Enterprise objectives are established at the strategic level and translated into granular objectives at the business unit level. Traditionally, these objectives have been financial ones, which has led to behaviors that optimize performance of the business unit at the expense of the enterprise, both from the financial and risk perspectives. A trend in process improvement is emerging, however, in which organizations directly link these objectives to the voice of the customer (VOC), voice of the business (VOB) and voice of the regulator (VOR), providing a more realistic measure of organizational performance.

An ERM framework has three broad categories of related objectives aligned with and supporting the selected strategy of the enterprise:

Operational objectives relate to the effectiveness and efficiency of the enterprise’s operations. They have historically been financial in nature and have not been truly indicative of the waste that typically occurs within the organization.

Figure 1 illustrates the relationship between the output indicators, those that the market may use to compare an organization to its competitors, to the process indicators that more accurately predict the performance capabilities of the processes. An organization’s ability to monitor and measure the upstream activities that contribute to the variability of its products or services can differentiate it from its competitors, which may continue to rely on outcome measures or financial measures to gauge their performance.

Figure 1: Relationship Between Output and Process Indicators

Reporting objectives have been in the headlines recently with both internal and external reporting failures – excellent examples of the breakdowns that exist in ERM. These failures can be directly related to the internal environment component of risk management.

Employees are often rewarded for their contributions toward the financial success of their business unit. Unfortunately, their actions may have an adverse effect on the overall enterprise. Six Sigma tools coupled with stakeholder adoption and change management can shift the focus to the VOC and the voice of the process (VOP). There are several different opportunities to increase the value of the organization through top-line growth (Figure 2).

Figure 2: Increasing Value Through Top-line Growth

Compliance objectivesrely on individual adherence to relative laws and regulations; however, employees’ behaviors can again be influenced by the internal environment established by leadership, coupled with the rewards and recognition system that drives those behaviors. The entity’s compliance record can significantly contribute to its reputation risk, either positively or negatively, in the marketplace.

3. Event Identification

Many basic Six Sigma tools can significantly assist leadership in managing this component of ERM. Using the tools can help practitioners:

◈ Provide insight into sources of potential failure events.

◈ Help determine opportunities to gather metrics that serve as both leading and lagging indicators.

◈ Apply statistical techniques to determine process capabilities that help establish escalation or threshold triggers.

◈ Highlight constraints that restrict the organization’s ability to meet production demand.

◈ Identify quality or service deficiencies.

Functional process flow analysis is used in most Six Sigma projects to document the as-is process. By applying Lean principles, processes are streamlined to eliminate waste and inefficiencies.

Performance metrics are established to indicate how well processes perform against the critical requirements of both the customer and the business. Process capability metrics and performance capability metrics serve as common measuring devices that leadership can use to prioritize resources to improve performance.

However, performance metrics are lagging indicators that measure outputs as seen by the customers of the process. Statistical tools can help quantify the relationship of process and input indicators collected upstream, which predict the performance of the process. These leading indicators can be statistically correlated to the output metrics, thus used as upstream predictors of process performance.

Process measures also provide an excellent source of information for identifying trends and root causes. Practitioners can use statistical techniques, such as hypothesis testing and design of experiments, to identify and quantify sources of variation in processes, and highlight the need for additional monitoring and controls in certain areas., These statistical techniques rely on the existence and accuracy of loss event data. Unfortunately, many organizations only recently have realized the need to establish these data repositories. Furthermore, tracking loss event data may not be enough. Organizations also must report rework and scrap.

Once an organization has established the reliable collection of process metrics, statistical tools can be used to quantify and establish critical escalation or threshold triggers that prompt management to either quickly assess or respond to a potential area of concern before it becomes an event. Buffer zones can be defined and alerts automated to be proactive in preventing an adverse event (Figure 3).

Figure 3: Buffer Zones in Output

Process indicators also can be examined using the theory of constraints to identify bottlenecks in processes that delay or interrupt service or product delivery. The information can help justify the allocation, or non-allocation, of capital and human resources to improve process performance.

4. Risk Assessment

Conducting a risk assessment is an opportunity to evaluate the magnitude that potential events might have on an organization’s ability to achieve both its strategic and operational objectives. There are three Six Sigma tools that can be used to translate the historically qualitative approach to more quantitative methods.

1. Cause-and-effect matrix helps identify critical steps in a process and the presence, or absence, of controls that prevent, mitigate or monitor adverse events. Numerical scores determine which activities create the greatest risk. Inputs into the process are then scored to refine the areas of potential risk.

2. Risk matrix can be used to score the enterprise’s ability to recognize sources of risk and its willingness and abilities to manage those risks. Twelve statements regarding risk are numerically scored to identify areas on which to focus, and opportunities to emphasize and leverage areas of strength.

3. Failure mode and effects analysis (FMEA) helps evaluate the risk associated with steps in a process or with the steps in the implementation plan of any project. Potential failure modes and their potential resulting effects are identified and scored for severity of impact to the organization. Potential causes are then identified and scored based on frequency or likelihood of occurrence. Finally, present controls are identified and scored based on the organization’s ability to prevent, mitigate or detect these failure modes. The three scores are then multiplied together to create a risk priority number (RPN).

5. Risk Response

Once the RPN has been calculated, the FMEA requires that an action plan be developed and responsibilities assigned to reduce the risk associated with the critical areas identified. Based on the RPN and the risk tolerance established by the organization, business decisions can be made to avoid or prevent the risk, reduce or mitigate the risk, share the risk, or accept the risk. A formal cost/benefit analysis of these alternatives assists leadership in defining their response. Once the action plan has been completed, a recalculation of the RPN is performed to determine if the activity now falls within the risk tolerance or if additional actions are needed.

6. Control Activities

Once processes have been improved, new processes created or potential risk levels decreased, these gains must be sustained. The concept of a process owner, supported by a formal process control system, is embedded in Six Sigma. This process owner is responsible for the constant monitoring of the output, process and input metrics to ensure the process does not return to its formal state. Control activities, such as policies and procedures, activity management, data integrity, and information processing all ensure leadership’s risk responses are performed with minimal variation and reported accurately.

A process control system contains all the information required to monitor the performance of critical processes. New process maps are used to educate all process workers regarding their role in the process and how their performance relates to the work of others. Critical performance targets are documented and continuously updated. Performance metrics are collected and compared to those performance targets to monitor process performance.

At this stage, statistical tools help evaluate the control activities. Quantifying the relationship of different data sets enhances the process owner’s ability to predict uncertainty. Control charts provide real-time monitoring of both common cause variation and timely evidence of special cause variation requiring immediate management intervention. Finally, hypothesis testing supports the investigation of unexpected results or unusual circumstances.

7. Monitoring

An enterprise’s approach to risk management changes over time. What was once viewed as compliance eventually becomes just good leadership practices. Critical core processes that once crossed multiple functional areas, but lacked both ownership and accountability, are now monitored and managed by process owners who listen to both the ever-changing VOC and VOB to evaluate performance continuously. Six Sigma consolidates multiple process control systems into a framework so process owners can constantly monitor and report key output, input and process metrics that more accurately reflect the enterprise’s performance.

8. Information and Communication

With a process management system to capture information quickly and report it accurately, process owners can focus less on the internal politics that exist between functional silos, and more on improving customer satisfaction and shareholder value. Data that is routinely collected as part of the process control system can be aggregated at the process, business unit and ultimately the enterprise level to provide the basis for management to make better informed and more timely decisions. Simple tools, such as balanced scorecards or risk dashboards, communicate a clear and concise message to all employees: Achieving objectives and managing risk are equally important.

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DMAIC Phases Mesh with Project Risk Management

Effective risk management plays a major role in the final outcome of any business project in terms of its ability to meet cost and time objectives. There are limitations in the amount of risk management that can be done, however, which may make it difficult to reduce uncertainty and increase efficiency in projects. Six Sigma concepts aid in working with these limitations though, because risk management activities can be incorporated into the DMAIC (Define, Measure, Analyze, Improve, Control) phases.

Risk Management Limitations

The main limitation for any business activity when it comes to improving efficiency is time. A project typically has a definite start and end date, which means any improvement initiative has to be focused within that limited time period. This translates to working in parallel with the activities of a project as they actually happen.

The second main limitation is that a project is inherently unique in nature. There may be few repeated tasks from which data can be collected to provide insight into the performance of the process. For instance, material is ordered just once and when there is a delay in receiving the material causing the schedule to slip, the focus is often on identifying a work-around rather than addressing the root cause of material delay. Statistical analysis, as a part of the Six Sigma methodology, focuses on having extensive repetitive data.

The third limitation is the level of uncertainty (risk) in the project’s lifecycle and the corresponding amount at stake. Details become available only when time progresses as a part of the life cycle. The ideal scenarios in Figure 1 illustrate the level of uncertainty and cumulative costs in projects.

Figure 1: Level of Risk and Cost Over Time

At the point when the amount at stake is the highest, usually during the later part of the life cycle when project execution takes place, the corresponding level of risk, ideally, should be low. In reality, however, this is not always the case and as a result, time and cost objectives are compromised. The key to efficiency is to reduce the occurrence of either the risk itself or reduce the impact of a risk.

Using Past Problems to Avoid Future Risk

The difference between an issue or defect and a risk is that risk is in the future; an issue or a defect is either now or the past. A risk becomes an issue or defect if it is not addressed. When documenting issues faced in past projects, it is useful to categorize them to enable gathering a comprehensive list. A sample issue breakdown structure is shown in Figure 2. At this point, the focus is in identifying all issues, irrespective of their impact or seriousness. Most project organizations maintain an issue log or a register that documents all issues and corresponding attributes.

Figure 2: Sample Issue Breakdown Structure

Blending DMAIC and Risk Management

The time element in projects invariably can lead to a situation in which project managers take action only when they see that there is a cost or schedule overrun in the current project. This may make their actions reactive. Using Six Sigma tools to understand past issues and applying them to current projects makes it proactive. Project risk management includes the following activities, as described by the Project Management Institute’s project management body of knowledge:

1. Risk management planning

2. Risk identification

3. Qualitative risk analysis

4. Quantitative risk analysis

5. Risk response planning

6. Risk monitoring and control

Figure 3: Risk Management Activities Aligned with DMAIC Phases

Telecom Case Study

A case study featuring a telecom supplier that applied Six Sigma concepts to overcome risk-management limitations and improve overall efficiency illustrates how the DMAIC method and project risk management activities can be linked. The company applied the concepts to a project on expanding an existing telecommunications network. The activities involved in the network expansion included planning the expansion, manufacturing and delivering necessary items, installing and configuring items at the site, and implementing and integrating the expansion.

In this case, arguments from project managers regarding the granularity of risk-management activities hinted toward a reactive attitude. Project managers were too caught up in fire-fighting costs and schedule overruns to take time out and realize the need for root cause analysis. Project managers did not realize that the issues they faced daily were a result of ineffective risk management.

The first task for the Black Belt was to compile measurements indicating the performance of past projects, such as cost and schedule overruns. Fifty-three projects were selected and corresponding overruns documented. The underlying assumption was that issues caused overruns. Issues in past projects would need to be identified, quantified, analyzed and categorized as risks for current or future projects to reduce future cost overruns.

Based on the knowledge of overruns in the past projects and the root causes, the Black Belt was able to predict the performance of the current or future projects in relation to the project objectives. The performance of the current or future projects depended on the analysis performed to determine probabilities and the impact of risks. Overruns in Figure 4 were treated as the impact.

Figure 4: Cost Overruns in Telecom Supplier’s Past Projects

From here, this case study can serve as a model for the use of both Six Sigma phases and risk management activities to prevent the reoccurrence of problems such as cost overruns.

Define Phase Meets Project Risk Management Planning

Define phase: This phase typically involves gathering customer requirements, putting the team together, understanding the problem and the scope, and making plans for subsequent activities. A key part of the Define phase is getting organizational support in the form of management commitment and budget for the initiative. The Define phase sets the project in motion by ensuring buy-in and support from stakeholders.

Project risk management planning: This includes details on how to approach subsequent risk management processes. It covers roles and responsibilities with clear communication of what is expected, the budget for risk activities, timing, thresholds, reporting formats, and scoring and interpretation information. As in the Define phase, in risk management planning, the project team needs to identify stakeholders who can support the project.

Case study example: Stakeholders were identified and classified following an analysis of their expectations and risk thresholds. Because the project involved subcontractors for certain activities, a representative from the subcontractor was included in the core improvement team. Scope included risks to be identified from all activities in the network schedule. A high-level cost-benefit analysis revealed an initial cost of poor quality of about 25 percent of the sales of the current project. This translated to $1.5 million. The message communicated to the stakeholders was that the Six Sigma team would provide risks, risk responses, monitoring and control support to the telecom project team, in turn reducing the potential overruns.

Common Tools: Stakeholder analysis; process flow charts; suppliers, inputs, process, outputs, customers (SIPOC) diagram

Measure Phase Meets Project Risk Identification

Measure phase: The Measure phase includes defining the defect and other metrics that are necessary for a baseline. A data plan is formulated and low-hanging fruits are identified. The focus is on understanding the performance of the processes based on current circumstances. Data collection involves looking at process maps in detail to identify areas of potential bottlenecks. Trends in the big Y metrics are identified and documented. Process map analysis should point toward the type of data to be collected.

Project risk identification: This step includes determining and documenting where the project might be at risk. Looking at issues of past projects provides information about potential risks for current or future projects. There are different methods used for documenting risks, but the most common method is to identify a risk, its drivers, the impact of the risk and the drivers for the impact. A degree of cause-and-effect relationship is used when identifying risks.

Case study example: The Black Belt team used the network diagram to identify sources of risks. Experts – those involved in the past 53 projects – were asked to provide information on the issues that they were privy to in their projects. Brainstorming techniques were used to make a list of all issues. Each activity in the network diagram was dissected to drill down to potential issues. For instance, drilling down to the activity of transporting material to a site revealed several issues, including material damage due to road conditions and a requirement for special vehicles. The issues were translated into a cause-and-effect diagram (Figure 5).

Common tools: Brainstorming; strengths, weaknesses, opportunities and threats (SWOT) analysis; cause and effect diagrams; data collection plans

Figure 5: Causes Behind Cost Overruns

Analyze Phase Meets Project Risk Analysis

Analyze phase: This phase in Six Sigma involves determining the cause-and-effect relationship based on statistical significance to the project goals. Steps include identifying value and non-value-dded process steps and drilling down to the vital few x’s. Based on the data collected, the Black Belt tries to identify correlations, causations and trends. The key element of the Analyze phase is to identify the issues that require the most attention based on quantified values.

Project risk analysis: This includes assessment of the likelihood and impact of the identified risks. The identified risks are still considered as issues from past projects. There are two types of analysis: qualitative and quantitative. In analyzing risks, practitioners look closely at two aspects: probability and impact (sometimes referred to as effect or consequence). Risk probability is the likelihood of occurrence of the risk event; the scales can be numeric or descriptive. Quantitative risk analysis includes distributions, simulations and decision-tree analysis. The key element of analysis is to quantify the identified risk.

Case study example: The Black Belt team collected the cost of overruns for all the issues and compiled it in a Pareto chart (Figure 6). This indicated the cost of a risk occurring. A Pareto was also created to identify the probability of a risk happening again based on historical information.

Common tools: Pareto charts, regression analysis, statistical analysis, hypothesis testing, Monte Carlo simulation

Figure 6: Issues in Telecom Supplier’s Past 53 Projects

Improve Phase Meets Project Risk Response Planning

Improve phase: This phase in Six Sigma involves developing potential solutions based on the root causes identified. The assumption is that solutions to make an impact on the root causes will subsequently have an impact on the project goals. Operating tolerances are documented, and pilot studies are validated for their impact. It includes putting into action solutions that have a sound statistical, data-driven basis after conducting a cost-benefit analysis.

Project risk response planning: Examining options and deciding on actions to enhance opportunities and reduce risks are a part of this activity. Responses are validated for appropriateness and cost effectiveness and are agreed upon by all parties involved in the response plans. Common strategies for responses include:

◈ Avoid – Change the project management plan to eliminate the threat posed by an adverse risk.

◈ Transfer – Shift the negative impact of a threat, along with ownership of the response, to a third party. Does not eliminate the risk.

◈ Mitigate – Reduce the probability and/or impact of an adverse risk event to an acceptable threshold.

◈ Acceptance – Decide not to deal with a risk, or be unable to identify any other suitable response strategy.

Case study example: A sample of the responses identified by the Black Belt:

Risk: Damage of hardware in transportation

Response: Have special packaging for the hardware to prevent damage during transit

Risk: Delay at customs because customs duty is not paid

Response: Assign responsibility to ensure customs duty paid

Control Phase Meets Project Risk Monitoring and Control

Control Phase: This phase includes:

◈ Implementing statistical process control to ensure that results are sustainable.

◈ Implementing transfer plans and hand-off procedures.

◈ Verifying results through a cost-benefit analysis.

◈ The creation of a control plan to ensure that processes are monitored and action plans are in place when there are significant deviations.

Project risk monitoring and control: This step involves managing the project according to the risk response plan. The project team keeps track of identified risks by looking out for warning signals. Corrective actions are evaluated and the risk response plans are reviewed and evaluated. Risk reassessments are on the agenda of team meetings as apart of risk control. Documents are updated for the actual outcomes of project risks as lessons are learned.

Case study example: The Black Belt team put the risk response plans into action, and as a result inherent causes of variation in terms of cost overruns were reduced. Monitoring actual cost overruns indicated a reduction by 80 percent from the trend observed in previous projects. Some of the root causes indicated need for change beyond the project, placing onus on the performing organization’s operational departments, including the procurement department.

Common tools: Control charts, cost-benefit analysis, audits and assessments

Be Proactive About Risk

Using Six Sigma principles for risk management in projects aims to decrease the level of uncertainty in projects by addressing root causes. DMAIC helps in shifting a project manager’s focus from firefighting to proactive management of issues and risks. Some organizations treat project management as risk management, referring to the concept of managing the unknowns proactively. Applying DMAIC tools and knowledge to risk management translates into efficiency in projects through better decision making and predictability.

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Structure of PRINCE2: Its Benefits in Project Management

Introduction

PRINCE2 (an acronym for PRojects IN Controlled Environments) is a de facto process-based method for effective project management. Used extensively by the UK Government, PRINCE2 is also widely recognised and used in the private sector, both in the UK and internationally. The PRINCE2 method is in the public domain, and offers non-proprietorial best practice guidance on project management.

PRINCE was established in 1989 by CCTA (the Central Computer and Telecommunications Agency), since renamed the OGC (the Office of Government Commerce). In June 2010, the Office of Government Commerce Best Practice Management functions moved into the Cabinet Office.

PRINCE was originally based on PROMPT, a project management method created by Simpact Systems Ltd in 1975, and adopted by CCTA in 1979 as the standard to be used for all Government information system projects.

When PRINCE was launched in 1989, it effectively superseded PROMPT within Government projects. PRINCE remains in the public domain and copyright is retained by the Crown. PRINCE2 was published in 1996, having been contributed to by a consortium of some 150 European organisations.

7 Principles of PRINCE2

PRINCE2 is a process-based approach that focuses on organization and control over the entire project, from start to finish. That means projects are thoroughly planned before kickoff, each stage of the process is clearly structured, and all loose ends are neatly tied up after the project ends.

The PRINCE2 method is built on these 7 principles

1. Projects must have business justification. Each project must have a clear need, a defined customer, realistic benefits, and a detailed cost assessment.

2. Teams should learn from every stage. Lessons are sought and recorded at every step in the process, and then used to improve future work.

3. Roles and responsibilities are clearly defined. Everyone should know exactly what they’re responsible for — and what their teammates are responsible for.

4. Work is planned in stages. Projects are broken up into individual work phases, with periodic reviews to record lessons learned and confirm the project is still on track to meet requirements.

5. Project boards “manage by exception.” Since board members are typically senior execs who don’t have time to manage a project’s daily activities, they establish baseline requirements for things like time, cost, risk, and scope, and then delegate daily oversight to the project manager. The project manager has the authority to get the project back on track if it’s running late, going over budget, etc. But if issues arise that will impact the established requirements, that’s an “exception,” and the project board decides the best way to proceed.

6. Teams keep a constant focus on quality. Deliverables are continually checked against requirements through the use of a quality register.

7. The approach is tailored for each project. The PRINCE2 method itself should be adjusted to suit the needs of each project, changing the amount of oversight and planning to fit the size of the project, number of people involved, etc.

PRINCE2 Outlines Eight Processes

1. Startup: The decision-makers gather and appoint a Project Manager. Together, these people all define the need for the project and outline the processes by which it is to be executed.

2. Direction: A Project Board is responsible for the overall success of the project, but an individual called the Project Manager, who reports to the Project Board, is charged with the responsibility of managing the details.

3. Initiation: The Project Manager prepares a Project Initiation Document. This document is submitted to the Project Board for approval. If it is not approved, it is returned to the Project Manager for revision.

4. Stage control: The project is broken down into manageable stages, the number of which depends on the project size and risk level. Each stage contains plans for the succeeding stage. Before a new stage can be begun, the current stage must be fully executed.

5. Stage boundary management: The current stage is reviewed, and the process for the next stage is developed. The project can continue only after the Project Board has approved the execution of the current stage and the plan for the next stage.

6. Planning: This includes decisions as to what products will be produced, the activities that will be required to produce the products, estimates of the cost, time, and other resources that will be necessary, risk analysis, activity scheduling, and process streamlining.

7. Product delivery management: The Project Manager must make sure that the right products are produced according to the planned schedule.

8. Closing: After the project has been completed, the Project Manager conducts a Post Project Review, which is an evaluation of the project’s outcome. Once this document has been approved by the Project Board, the project is closed down.

The 7 Phase Process

Starting-up a project

- Someone submits a request for a new project, called the project mandate. The project mandate is very brief, covering only why the project is necessary and what it will ideally accomplish.

- Someone assesses every project mandate to make sure the company is capable of taking on the project.

- If approved, the person who initiated the project then submits a more detailed project brief, which covers the actions, resources, manpower, etc. needed to execute the project.

Directing a project

- The project board reviews and evaluates project briefs based on business justification and viability for another round of approval/disapproval.

- The project board decides what it needs to do in order to organize and execute each approved project, and what/how they’re going to delegate to the project manager.

Initiating a project

- The project manager creates Project Initiation Documentation, including a comprehensive project plan and baselines for 6 performance targets: time, cost, quality, scope, risk, and benefits.

- Initiation documents are sent to the project board for approval. Once the board is confident in the project plan, they give their approval once again and work begins.

Controlling a Stage

- The project manager breaks down the project into smaller “work packages” and passes them off to team managers and teams to complete.

- The project manager oversees the progress of work packages during each stage and steps in to help overcome roadblocks or correct any mistakes, if necessary.

- Team managers coordinate detailed daily work and act as the link between the project manager and individual team members, helping to make sure everything goes according to plan.

Managing Product Delivery

- The project manager checks progress against the project brief and makes sure deliverables meet quality expectations.

- The project board evaluates completed work packages, and either approves them or requests revisions/changes.

Managing Stage Boundaries

- The project manager and project board review each stage to make sure the project is progressing according to plan and meeting project assurance requirements.

- At each review, the project board decides whether to continue with the next stage or to abandon the project completely.

- Project managers hold a retrospective with the project team to record any lessons learned and improve the next stage.

Closing the Project

- When the project is complete, the project manager wraps up and loose threads, including documentation, outcomes, and reporting.

Advantages of Prince2

- PRINCE2 provides a controlled start, controlled progress, a controlled close

- Regular reviews against plan, business case and risks

- PRINCE2 provides flexible decision points

- Automatic management control over deviations

- Stakeholder involvement at the right times

- Clear communication channels

- Project managers using PRINCE are able to establish terms of reference before the project start

- There is a defined structure for delegation & communication

- Project manager divide a project into manageable stages for more accurate planning

- Resource commitment from management is part of any approval to proceed

- Regular but brief management reports are available (checkpoint reports, highlight reports and exception reports)

- Meetings with management are kept to a minimum, but at vital points in the project

- End product users are able to participate in the decision-making

- End users are involved in project progress

- End users participate in quality checks throughout the project

- User requirements are specified

- PRINCE2 is free (other then any training or support you want to pay for)

- PRINCE2 has a strong User Group

- PRINCE2 is supported by (UK) Government and organisation such as APM and ISEB

- Training courses are available from many accredited training organisation

- PRINCE2 is flexible and can be applied to any kind of project

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5 Useful (& Free) Project Management Tools for Agile Projects

Introduction

If you are a project manager, you probably understand that the choice of project management software plays a crucial role in the success of a project. Agile project management software is one the most popular and widely used tool to meet deliverables and reach deadlines. With its popularity on the rise, the market is flooded with various agile tracking tools.

But, what is agile project management?

Agile as a word means ‘ready ability to move with quick easy grace’. It also implies ‘having a quick resourceful and adaptable character’. Today’s project manager works with moving targets. So, your ability to meet key milestones depends on how quickly you can adapt to changes based on a constant feedback loop. Agile makes all this possible. It can be defined as a value-driven approach with a focus on empowering users to deliver top-quality and high-priority work.

In simple words, it is a tool that makes managers adaptable to real-time changes in terms of cost, time and scope. It breaks down complex projects into smaller tasks to be completed in a specific phase of time. Through the collaborative approach, the manager using Agile software can derive high-quality work from his/her team members.

As already mentioned, there are various tools available in the market to meet your Agile needs. It can be quite overwhelming to decide which one to go with. For starters, we at Process Central shortlisted 5 of the best project management tools to help you with this decision. Don’t worry! You don’t need to spend a bomb to get access to them. All the 5 online project management tools mentioned are free of cost. If you are impressed with any of them, you can buy the premium editions with advanced features.

1. Trello

Features:

Trello is one of the popular tools and is considered the best agile project management software by many. What is the reason for its popularity? Simplicity! It is based on Kanban Methodology which was devised by Toyota to improve productivity and allow for flexibility.

Basically, it is a framework with boards, lists and cards in the hierarchal order. At the top of the ladder is the board which could be a project that needs to be completed. Below the board are lists. They are subcategories within the project, which can be classified based on the requirement of the project. For example, the lists can be based on priorities, areas of interest, responsible person etc. At the end of the ladder are the cards. A card is the basic unit of the board. These are individual tasks which can be shuffled inside the list based on the priority. This project planning tool also allows you to include comments, checklists, and images.

What’s more?

Trello gives notifications about changes made to the cards, lists, and boards that you are a member of.  Further, Trello has a long list of power-ups (Slack, Github, Hubstaff etc.) that you can use to make the best out of this Agile project management software.

The list of benefits of using Trello is long. It is compatible with all the mobile platforms. Apart from being one of the best project management tools, it can also be useful in the personal space to track important events. Its simplicity and flexibility allow you use it for practically any project you have. Training your team to use it wouldn’t be difficult either.

However, if you are working with a big team and have hundreds of tasks at the same time, this might not be your best bet. Also, if there are dependencies between tasks, this tool might not be the most effective for you. Nonetheless, many project managers love it for handling smaller projects with smaller teams. 

You can get the basic version of Trello for free forever. It also has 2 paid membership plans. One is the Business class at $9.90 per user per month (when paid annually). The other is Enterprise class charged at $20.83 per user per month (when paid annually)

2. IceScrum

IceScrum is open source scrum project management software. It has been developed by a French company, Kagilum (KAnban-aGILe-scrUM), SAS in 2011. The software runs on Java web application. In its basic structure, it has a virtual task board and sticky notes allowing the Agile project manager to handle tasks.

This Agile software tool has products (Projects) with features below them. Features are further divided into user stories. These stories are nothing but the tasks under the project that the team works on and are represented by cards. The best part of this project tracking management tool is the rhythm of releases and sprints. The set of stories which are being modified or prioritized is called backlog in this tracking tool. These stories are further split into sprints in order to meet the set deadlines based on team strength, priorities, and other factors.

The other features of IceScrum include bugs, acceptance tests, and sandbox. Bugs are managed in a unified backlog referred to as defect stories. Acceptance tests allow the team to confirm if the story is really done or needs more work. Sandbox is where the team members or stakeholders can make comments and contribute to the collaborative environment. This, in turn, adds value to the product.

IceScrum comes with a set of tracking tools. It helps teams continuously track their progress and make changes accordingly. It works across various platforms such as Linux, Mac, and Windows. It is also compatible with various apps such as Google Drive, Dropbox, GitHub, and more.

However, IceScrum is not ideal for large organizations. It does not allow for multiple products to be running at the same time. The Other disadvantage is that the users are given roles such as scrum master, team member, stakeholders etc. But, these users cannot be teamed up in IceScrum. Also, a lot of first time users complain that it is not easy to get a hang of it in the beginning.

Despite these few weaknesses, it is a very effective tool in order to meet deadlines for the projects. If you are a small team working on a single project, you would reap a lot of benefits out of this free Agile project management software.

As per the pricing, this software comes free as well as at a price with advanced features. There are 2 versions: Teams & Business

Teams	Price per month
1	€ 29,90
2	€ 49,90
3	€ 69,90
4	€ 89,90
5	€ 109,90

Business: Unlimited number of teams charged at €249,90 per month. 

3. TargetProcess

Looking for a holistic solution that allows you to see the big picture? TargetProcess might be of help. Most software project tracking tools can help with noting and tracking the details. Sometimes, this overemphasis on details makes the project manager lose track of the forest for trees. TargetProcess can help you with both staying true to the main objective and getting the small tasks done. It is a highly customizable Agile project management software which works using Scrum, Kanban and any of your pre-set processes. 

TargetProcess calls itself the visualizing tool. It consists of features, user stories, and tasks in the typical Agile Hierarchal order. Apart from these, it provides for the bugs and impediments. One of the best features of this project tracking tool is that it provides for visualization at every level of the hierarchy. It provides visual coding to prioritize tasks and includes any incoming tasks. The timeline in the software allows the project manager to track the changes or progress. Using this feature, the user can set milestones to be achieved.  

Risk Management empowers the user to track if the current project is in sync with the originally envisioned one.  Also, you can use the software to send you auto alerts if a task meets a certain criterion. For example, you can set an alert for a task 24 hours before the deadline.  

It integrates quite easily with external software. Mercurial, Git, Subversion and other software work well with this Agile tracking tool. You can also import and export data from excel through this software. 

Some users think that the user interface of this tool can improve from the current standard. There are also some problems with its speed and scrolling screens.  Overall, most users rate it very high when it comes to simplicity and visual coding. Its customization features are very beneficial during the planning stage of the project. 

The free account of this agile tool allows 1000 entities with basic features. The company account is charged at $20 per user / month with annual billing. Otherwise, you need to pay $25 per user / month. There is also an Enterprise account with the premium account, private-cloud and other advanced features. 

4. VersionOne Lifecycle

Way before becoming popular in the software development market, the agile management tool has been pioneered by VersionOne in 2002. The company works with the mission and the tagline of ‘Agile made easier’. It is one of the only tools in the market that stays completely true to the lifecycle in an agile project plan. Its credentials can be validated by the fact that many global software companies such as Motorola, Dow Chemical, and Lockheed Martin use this software.

There are 4 main features in VersionOne: product planning, release planning, sprint planning, and sprint tracking. Product planning is composed of managing your backlogs: stories, defects and test sets. Filtering facility enables you to prioritize stories to suit the needs of the project. The sequence is that you generate stories, plan releases, sprint and track the progress of each task 

VersionOne works with all other Agile software tools: Scrum, Kanban, Lean, XP, SAFe® and hybrid. This feature allows companies to scale up quicker and faster. Its comprehensive visibility helps you to plan and track tasks right down to your team members. It also comes with a ‘conversations’ feature. Through this, you can easily communicate with the team members, share information, give feedback etc. VersionOne doesn’t have the shortcomings of the above mentioned free online project management tools. It works with multiple teams and multiple projects.  

As for the cons of VersionOne, it requires too many clicks. As a user, you would wish for shortcuts. Some users also complain about the tool being cluttered and not easy to use. However, most companies swear by its efficiency and appreciate the comprehensive framework it provides. 

VersionOne has many pricing editions. Read the table below for details on each edition.

S.No	Edition	Features	Pricing
1	Team	Single Team Starting with Agile	Free
2	Catalyst	Cross-Functional Team Ramping Agile	Price on request
3	Enterprise	Multiple Teams Expanding Agile	Price on request
4	Ultimate	Organizations Scaling Agile	Price on request
5	VS	Unifying Enterprise Agile & DevOps	Price on request

5. Pivotal Tracker

Pivotal Tracker is one of the best, free software development project management tools. The selling feature of Pivotal Tracker is that it predicts the time that a project can take based on the teams’ previous performance. This way, it allows the project manager to set realistic goals and allow team members to work at a sustainable pace. 

Like in most other Agile management tools, the project starts with a story. Using the tracker, teams can develop and track the stories from the start to the end, leading to a collaborative approach. Further, this software project tracking tool provides analytics to measure various aspects of the project management. It included both the big picture and the micro details. 

Through Pivotal Tracker, you can have all your work across multiple projects and teams at one place. On one screen, you can juggle all your work side-by-side. Want to know the best part? It is compatible with more than 140 third party apps and integrations.  

On the downside, Pivotal Tracker is considered expensive compared to other online project management tools. Also, it can be a bit of a hassle at times if you are a part of multiple projects. You cannot at once see all the tasks that are assigned. For that, you need to go to each individual project and check. However, Pivotal Tracker is quite responsive to feedback and constantly modifies itself to improve the user experience. 

Pivotal Tracker is free for up to 3 teams and 2 projects. The paid accounts have the following pricing structure:

Plans	Price	No. of Collaborators	No. of Private Projects	Storage Limit
Startup	$12.50/mo when paid annually	5 collaborators	5 private projects	5GB storage
	$29.17/mo when paid annually	10 collaborators	10 private projects	25GB storage
Pro	$62.50/mo when paid annually	15 collaborators	Unlimited	Unlimited
	$125.00/mo when paid annually	25 collaborators	Unlimited	Unlimited
	$250.00/mo when paid annually	50 collaborators	Unlimited	Unlimited
Enterprise	Request Pivotal Tracker for details

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The Role of a Project Manager

Overview of Project Management

We hear the phrase “project management” on a daily basis, but few of us know what the term entails and what the role of a Project Manager actually is. There is a misconception that Project Managers are constantly inundated with paperwork and that they mostly run around arranging meetings.

Quite the opposite is, in fact, true. Paperwork can be a large part of the job, but many organisations have moved their operations to the cloud, significantly cutting down on time spent doing physical paperwork. Although a Project Manager spends around 90% of their time communicating, meetings are held to a minimum and are kept as short as possible to ensure only the most relevant information is discussed and to ensure productivity is not affected by long meetings.

What exactly is a project?

To determine what a Project Manager actually does, it is necessary to first understand what a project is. Think of a project as a temporary goal. To achieve this goal, a set of operations need to be put into place and executed correctly for the outcome to be successful. It has a predetermined start and end, and a definable size with a certain amount of resources available to complete the goal.

The “goal” may be a physical product that needs to be produced to a certain quality standard, a bridge that needs to be erected by a certain time or even an IT solution that needs to be implemented by a certain date.

Roles and Responsibilities of a Project Manager

The Project Manager is the individual that is held responsible for the outcome of the project. They will need to initiate, plan, design, monitor control and, ultimately, close the project, whether it ends successfully or in a failure.

Common Project Manager Duties

Seeing as the Project Manager is held accountable for the project’s status at any point, they will have various duties to perform during the lifecycle of a project. They need to ensure that any products (or parts of a product) that are completed, are delivered within the time scale that had been agreed upon while ensuring that the costs involved in completing that product are within budget.

Quality is a major factor in projects. If the product is not of a desirable quality, it will be rejected by the client and the project will either have to be restarted or scrapped altogether. The Project Manger needs to ensure that this does not happen.

A Project Manager will also ensure that the progress being made by the project team is sufficient to justify the cost of that phase the project, ensuring that the project remains viable.

A Project needs to adhere to and achieve the expectations of any stakeholders or sponsors that are invested in it’s outcome. The Project Manager will supply regular reports as far as progress and set guidelines are concerned.

There is always the chance of unforeseen risks cropping up in any project and this needs to be monitored by the Project Manager. Risks need to be identified in a timeous manner and suggested remedies reported to the project board. The approved fixes will then be implemented to ensure the project stays on track.

Change in the project needs to be monitored and addressed while ensuring that the objectives of the project remain within the agreed upon constraints.

The above mentioned are but a few of the tasks and responsibilities that a Project Manager will face on a daily basis. In short, they need to monitor and manage the project and project staff in such a way that it stays within the boundaries that were set during the initiation of a project.

Skills Required by a Project Manager

The skills required to be a competent Project Manager are to do with leadership and management, for example:

Team-Building Skills: Creating a common purpose for a team to work towards creates a sense of comradery between team members as they are all working toward a common goal that will, ultimately, benefit each member of the team.

Ability to Delegate Tasks: Delegating tasks to your team members will enhance the sense that they are trusted in their skills and that the Project Manager has faith that the task will be completed as is expected. Project Managers that check up on their fellow workers are seen as micro-managers, breaking the trust that has been instilled in their team.

Scheduling: Working according to a plan is essential if a project is to have the desired outcome. Ensuring the right tasks are carried out by the right person at the right time will see those targets being met more often than not.

Resource allocation: The right resources need to be allocated to the right departments when they are needed. The individuals that the resources are allocated may need to be coached or trained according to their skillset to ensure that resources are not wasted or used incorrectly.

Risk management: When an issue arises during a project, there needs to be a plan in place and it needs to be followed calmly and according to a risk management strategy. This will also be created by the Project Manager.

Budgeting: There are serious boundaries and constraints attached to every project. One of the most regular reasons for project failure is breaching the limit of budgeting. This could arise not only from overspending on resources, but from bad time management of staff or hiring of contractors to provide specialised work that cannot be sourced from inside the organisation.

Issue management: Akin to risk management, issues that arise could seriously hinder the progress and ultimate conclusion of a project. These also need to be identified and dealt with swiftly to keep the project on it’s intended path.

Soft skills

Soft skills are interpersonal skills that can make a very big difference, especially since Project Managers work with people. Some examples are:

Communication: As with delegation, project staff need to be aware of their duties as well as responsibilities and the progress of the overall project at all times. It is up to the Project Manager to ensure that everyone is on the same wave length, especially when not everyone is working on the same site.

Integrity: Best practise is not only applicable to the processes used by an organisation, but also to the way a Project Manager attends to their duties. A Project Manager cannot expect project staff to work ethically when they are not doing the same.

Empathy: Project Managers will do well to remember that each individual working on the project has a life outside the project and that each of those individuals may have their own ideas and feelings about the work being done. Retaining a human element to the work being done binds teams together.

Staying calm under pressure: We’ve all been in a situation where we feel that we are in over our heads. When this happens, the worst possible thing to do is to lose control and start pointing fingers. A good Project Manager will collect themselves and face the problem head-on in a calm and collected manner.

With the right mindset and a trust in the training that has been undertaken, project management can be a long and fulfilling career. The schedule of a Project Manager is often a hectic one, but once a project has been completed successfully, there is a real sense of achievement and the dividends can be enjoyed.

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What is Agile Project Management?

A Brief History

In the early 1990s application development was facing a crisis in that the applications in production aimed at meeting business needs was lagging by as much as 3 years. By the time the applications were produced, business needs had once again changed and projects were closed prematurely as they had become unviable.

With all these factors in mind, 17 software professionals met in a ski lodge in 2001 in Utah, US, in order to discuss a better approach towards software development, and Agile was born.

Roles and Responsibilities

When it comes to Agile Project Management it is worth noting that most Agile processes – and Scrum in particular – do not include a role called “Project Manager”. Without a specific person tasked with performing all managing duties, those responsibilities are distributed among the other roles on the project, namely the team, the ScrumMaster, and the Product Owner.

How are Agile projects managed?

In Agile Project Management, Scrum is the Agile process with the most to say about the management of a project, so we will use it as our model process for answering this question. On a Scrum project, there are three roles: Product Owner, ScrumMaster and team.

The Product Owner is responsible for the business aspects of the project, including ensuring the right product is being built and in the right order. A good product owner can balance competing priorities, is available to the team and is empowered to make decisions about the product.

The ScrumMaster serves as the team’s coach, helping team members work together in the most effective manner possible. A good ScrumMaster views their role as one of providing a service to the team, removing impediments to progress, facilitating meetings and discussions and performing typical project management duties such tracking progress and issues.

The team itself assumes the responsibility for determining how to best achieve the product goals such as cost and quality standard as established by the product owner. Team members will collaboratively decide which person should work on which tasks, which technical practices are necessary to achieve stated quality goals etc.

From looking at these three roles we can see that the Agile project management responsibility is divided among a project’s product owner, ScrumMaster and team.

Is the ScrumMaster considered the Agile Project Manager?

In Agile project management the world may come to view the ScrumMaster as a 21st century version of the Project Manager. Unlike a traditional Project Manager, the ScrumMaster is not viewed as the person to credit (or blame) for the success (or failure) of the project.

The ScrumMaster’s authority extends only to the process. The ScrumMaster is an expert on the process and on using it to get a team to perform to its highest level. But a ScrumMaster does not have many of the traditional responsibilities – scope, cost, personnel and risk management among them – which a Project Manager does.

Who handles the traditional project management responsibilities in Agile project management?

Traditional Project Managers take on a great deal of responsibility. They are responsible for managing scope, cost, quality, personnel, communication, risk, procurement and more. This has often put the traditional Project Manager in a difficult position—told, for example, to make scope/schedule trade-off decisions but knowing that a product manager or customer might second-guess those decisions if the project went poorly.

Agile processes acknowledge this difficult position and distribute the traditional Project Manager’s responsibilities. Many of these duties such as task assignment and day-to-day project decisions revert back to the team, where they rightfully belong. Responsibility for scope/schedule trade-offs goes to the product owner.

Quality management becomes a responsibility shared among the team, product owner and ScrumMaster. Other traditional project management responsibilities are similarly given to one or more of these Agile roles.

Do Agile Projects scale?

Agile processes like Scrum are definitely scalable. While the typical Agile project has between five and twenty people across one to three teams, successful Agile implementations have also been used on projects with 200-500, even 1,000 people. As you might expect, projects of that size must introduce more points of coordination and project management than small-scale implementations.

To coordinate the work of their many teams, larger projects sometimes include a role called Project Manager. While involving someone on the project with this title or background can be very helpful, we need to be careful of the baggage associated with the title of Project Manager.

Even on a very large Agile project, much of the project management will still be done by teams—for example, teams will decide how to allocate tasks, not a Project Manager —so the Project Manager role becomes one of Project Coordinator. Duties would include allocating and tracking the budget, communicating with outside stakeholders, contractors and others, maintaining the risk census with guidance from the teams, ScrumMasters and product owners etc.

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