# Risk Management Technique – 3-Point Estimate

The 3-point Estimate is a mathematical technique for constructing an estimated distribution of probabilities reflecting the outcome of future events, based on limited information. In the project management area, it is one of the most effective techniques used to develop estimates. Dick Billows indicates its three advantages:

1. Increased accuracy over one-point estimates
2. Better commitment from the project team members because the estimate considers the risk in the assignment
3. Useful information on the risks of each task.

In 3-Point Estimate, three figures are produced initially for every distribution that is required, based on prior experience or best-guesses:

• O = the best-case (most optimistic) estimate
• M/BG = the most likely (best guess) estimate
• P = the worst-case (most pessimistic) estimate

More precisely, in project risk management, O stands for the amount of work the task might take if the positive risks team members identified do occur. M presents the average amount of work the task might take if the team member performed it 100 times. And P is the amount of work the task might take if the negative factors they identified do occur.

There are two commonly used equations of 3-Point Estimate: triangular distribution and double-triangular (or Beta) distribution. Compared with triangular distribution, the Beta distribution considers more weight on the most likely estimate. In most real-world cases, the Beta distribution has been proven to be more accurate than the triangular distribution. Moreover, the Beta distribution also is called PRET which stands for Program Evaluation and Review Technique. There are the equations of the distributions as follows.

1. Triangular distribution:

`E = (o + m + p ) / 3`

2. Double-triangular (or Beta, PRET) distribution:

```E = (o + 4m + p) / 6
SD = (p − o) / 6```

where E for both equations represents Estimate; SD is the standard deviation which measures the level of certainty of the Beta distribution.

References

# Risk Management Technique – EMV Decision Tree

## EMV Analysis

EMV stands for Expected Monetary Value which is a statistical technique used to measure the average outcome for situations under uncertainties including positives (opportunities) and negatives (threats). Specifically, in project risk management, it can help managers or risk specialists to calculate identified risk and analyse the effect of them quantitatively on overall project objectives. This process is named Quantitative Risk Analysis. Moreover, EMV calculation is an essential skill for the PMP exam.

EMV of each possible outcome is calculated by multiplying its probability and its impact (as well as the value). According to the fact that scenarios may be comprised of multiple options, EMV equals to the sum of EMVs of options. As mentioned above, there may be opportunities and threats, so that the EMV of them are expressed as positive and negative values respectively. There is the equation of EMV as follows.

``EMV = possibility (%) * value (£)``

In regard to risk analysis, EMV can be utilised to calculate the cost used to remove a risk in theory. It should be noticed that there is no risk which can be completely eliminated by spending money in real practice. Then, the value with the highest EMV is selected after the analysis which reflects the lowest risk.

## Decision Tree Analysis

A decision tree is a decision support tool that uses a tree-like decision model and its potential consequences. Using decision tree analysis is helpful to grasp how alternative capital solutions can be determined when the world includes unpredictable elements. In other words, it can help you making decisions accordingly when there are multiple options appeared.

Satya Narayan Dash has concluded the major points of decision tree analysis. There are:

• Decision Tree takes future uncertain events into account. The event names are put inside rectangles, from which option lines are drawn.
• There will be decision points (or “decision nodes”) and multiple chance points (or “chance nodes”) when you draw the decision tree. Each point has different symbols: a filled up small square node is a “decision node”; a small, filled-up circle is a “chance node”; and a reverse triangle is the end of a branch in the decision tree. These are noted in this table:
• Because this format results in a diagram that resembles a tree branching from left to right, the decision tree is an apt name! To analyze a decision tree, move from left to right, starting from the decision node. This is where the branching starts. Each branch can lead to a chance node. From the chance node, there can be further branching. Finally, a branch will end with an end-of-branch symbol.
• The probability value will typically be mentioned on the node or a branch, whereas the cost value (impact) is at the end.
• Next, come the calculations on the branches of the tree. To calculate, move from right to left on the tree. The cost value can be at the end of the branch or on the node. Just follow the branch to do the calculation.
• The best decision is the option that gives the highest positive value or lowest negative value, depending on the scenario.

## Example

### Scenario

Suppose you are the product manager of a video sharing website PiliPili. Stakeholders have shown interest in expanding business opportunities in the new area of online games. There are two solutions that you can take into account:

• Develop an independent website of online games investing £8M
• Implement a new category of online games in PiliPili investing £3M.
1. If you build a new online games website, there is a 75% chance of a high demand and the company will realise £15M and 25% of a weak demand and the company will realise £5M in revenues.
2. If you produce a category for online games, there is a 60% chance of high demand and the company will realise £10M in revenues and a 40% chance of weak demand and the company will realise £2M in revenues.

How do you make suggestions to the board?

What is the EMV of either option?

### Application

1. Draw a decision tree starting from the left and move from the left to the right. A decision node following by a topic event will lead to two options. And each option will lead to two events or chances branching out from the chance nodes. Do not forget adding a reverse triangle at the end of each branch. Then, assign a probability of occurrence for each option pertaining to that decision. All information showed on the figure is already known from the scenario.

2. Compute the Expected Monetary Value for each decision path. The calculation sequence should be from right to the left. First, compute the profit of each branch by its outcome minus the investment on it. The EMV of each branch can be determined by multiplying its profit by its probability then. Adding them together, that is the EMV of an option of a decision. In regard to the EMV of the overall scenario decision, it should be considered as the maximum value among its options’ EMV.

Also, there is another way to represent this figure by replacing EMV of options with chance nodes, while the calculating process and result are the same.

References

# Risk Management Technique – SWOT

SWOT is a strategic analysing framework used to summarise pivotal events associated with the competition of an organisation or a project as well as its business or execution circumstances in (also can be applied for personnel analysis). The company/project board or management team can employ SWOT analysis to recognise the capabilities and identify valuable information to draw an overall view of its strategic position. Then, potential risks and strategies during accomplishing objectives could be explored accordingly, with a focus on leveraging strengths and opportunities to overcome weaknesses and threats.

The acronym represents four perspectives that are divided into two major categories: internal and external. The internal group consists of strengths (S) and weaknesses ( W ), which indicates the situations of applying readily available resources and experience of the company or project for achieving the objectives. The factors may include all of the 4Ps (Product, Price, Place, Promotion) as well as personnel, finance, manufacturing capabilities, and so forth. There is one reasonable classification of these factors introduced by Business News Daily as follows:

• Financial resources (funding, sources of income and investment opportunities)
• Physical resources (location, facilities and equipment)
• Human resources (employees, volunteers and target audiences)
• Access to natural resources, trademarks, patents and copyrights
• Current processes (employee programs, department hierarchies and software systems)

The external group also covers both positive and negative perspectives that are opportunities and threats. By contrast, the issues in the external group are comparatively uncontrollable for a company or project. Due to the factors external to organisations or projects, such as macroeconomic matters, technological development, legislation sociocultural changes and changes in the marketplace, the opportunities (O) and threats (T) that impact the process of achieving objectives directly or indirectly would emerge. Business News Daily also provides a classified result of them.

• Market trends (new products, technology advancements and shifts in audience needs)
• Economic trends (local, national and international financial trends)
• Funding (donations, legislature and other sources)
• Demographics
• Relationships with suppliers and partners
• Political, environmental and economic regulations

Furthermore, a variant of SWOT, TOWS Matrix can be employed to explore relevant strategic options of identified risks that an organisation or a project could pursue. Jim Woodruff (2019) has explained the differences between SWOT and TOWS. And there is an example of TWOS application presented by Oxford College of Marketing.

Apart from using for risk analysis, a kind of Business Planning Checklist containing key activities that need to be performed when preparing a formal business plan can be generated. The task in the template is a specific activity for dealing with different types of issues that have been identified by SWOT analysis.

# Risk Management Technique – PESTEL

PESTEL, as a variant of PEST framework, is an external analysis framework used for identifying macro-environmental factors and presenting as a set of structured sub-headings to be taken into consideration. This is a strategic method to recognize the rise or decrease of the industry, business positions, business opportunity and direction. Organisations that successfully monitor and respond to changes in the macro-environment are able to differentiate from the competition and create a competitive advantage.

The identified factors can be broken down using the following elements:

• Political. This factor indicates the policies that may impact specific industries or industries directly or indirectly formulated by government departments. The reason for these policies would be mainly as a means of regulating the market. Hence, it would include taxation policies, trade restrictions, tariffs, political stability, etc.
• Economic. The factor regards mainly depend on the economic environment and performance of regions, including interest rates, exchange rates, inflation rates, employment or unemployment rates, raw material costs, etc. Obviously, it would greatly affect the operation and profitability of the organisation.
• Societal. There are many changing trends in social environments, such as population growth, age distribution, education levels, cultural needs, changes in lifestyle, etc. It would be helpful for the organisation to understand the real needs and wants from these perspectives.
• Technological. The development of science and technology has affected many industries. The technological factors can determine entry obstacles, optimise output performance and influence outsourcing decisions. In addition, advanced technologies will improve the performances on cost, efficiency and innovation. The factors could be considered as technology development especially in digital or mobile areas, automation, R&D, etc.
• Environmental. Environmental and ecological impacts mainly come from climate, weather, resource consumption and waste emission. With the increasing awareness of environmental protection, organizations need to consider this aspect to meet consumers and natural ecology.
• Legal. while there are some overlaps between political and legal aspects, the previous factors are led by government policies and the legal factors mainly focus on the order of societies within the territories. These include discrimination law, consumer law, antitrust law, employment law, health and safety law, etc.

# Risk Management for Bilibili(2019) – Exploring a Risk Management Plan

All reference resources used are before 2019, the ‘current’ mentioned below refers to the beginning of 2019, and the ‘future ‘refers to the second half of 2019 and beyond.

As I mentioned in the previous post, we can see that the company has always placed content in a critical position. On the other hand, there were many incidents in the online entertainment industry that suffered from penalties because of content quality issues in China. Hence, the quality of the content is one of the clearest and urgent risks that could be encountered for Bilibili. In the following content, I attempt to use BowTie XP to explore current and improved risk management plans to reduce this risk respectively. And only some typical threats and consequences in each figure are introduced detailly.

## Existing Risk Management Plan

The above BowTie figure indicates the causes and results of the content quality problem, according to the data, news, laws, government policies, company terms and so forth I have collected. Consequently, the hazard could be defined as ‘Operating the content in the platform’. And the top event is ‘illegal or inappropriate content posted’.

### Threats

One of the most obvious threats I set introduces that ‘content providers ignore or comply with the requirement intentionally’. In one of the cases that would lead to this situation, some content creators would like to have more traffic by posting illegal content. In order to handle the problems, Bilibili set up the membership exam from 2013, which means only the users pass this exam, then they can upload content. And another barrier indicates that only certified content providers can upload the specific type of content, such as political information.

### Consequences

One consequence is if users saw inappropriate content, they may reduce their engagement and loyalty. For example, a well-known former poster of Bilibili was exposed in the video content and comments he posted in 2018 that there were several sexual harassments and homophobic inappropriate information. This incident caused many users to doubt the website’s review and management mechanism at the same time as they resisted this poster. As a result, the platform was punished by relevant departments and its reputation was damaged. There are three barriers I found for this situation. Firstly, deleting this content as soon as possible. Secondly, Bilibili provides the report system. And the last measure is content providers who have posted illegal or inappropriate content would be sent to Xiaoheiwu temporarily or permanently to limit them to use the website.

## Improved Risk Management Plan

The new risk management plan above has been improved based on the existing plan and multiple potential factors. So the hazard and event kept unchanged. Some new threats, consequences and the barriers could be found in the map, highlighted by red rectangles, that are introduced as follows respectively.

### Threats

Laws and regulations changing could be a threat. But for most normal companies, they don’t have enough money to form their own legal departments. Considering the growing number of users of Bilibili.com and the huge potential of its marketplace as mentioned in the previous post, the company should consider the formation of an internal legal department in the future to handle the risks by business growth.

And some techniques could help to improve the efficiency of content review, such as artificial intelligence.

### Consequences

For the consequences, in order to avoid losing money, the company could buy some business assurances, while the commercial assurance system is not perfect enough in China.

The worst consequence I can think of is Bilibili has to shut down the platform permanently. But I have no idea about how to make a barrier for it.

# Risk Management for Bilibili(2019) – Identifying Risks

All reference resources used are before 2019, the ‘current’ mentioned below refers to the beginning of 2019, and the ‘future ‘refers to the second half of 2019 and beyond.

## IRM

Based on the collected information, the four major risks of Bilibili are classified and shown as the mind map above. The arrows among them represent the relationship of influencing among each risk. The major risks have been identified and discussed as follows.

1. Distribution of income. The company prospectus(2018) shows the percentage of profit from mobile games increased by year, which are 65.7%, 65.4% and 83.4%  of the total net revenue from 2015 to 2017 respectively. During this period, Bilibili did not invest much budget in the mobile games market, thereby the number and size of mobile games Bilibili owns were not large. In addition, all of those mobile games Bilibili owns were offered from third-party game developers and publishers. However, there were significant returns brought by mobile game products and services. Especially in 2017, two of the games have a particularly strong income, which accounted for 71.8% and 12.7% of the total revenue from mobile games. While revenue from mobile games fell back to 61.7% (103.7 million US dollar) of the total net revenue (168.1 million US dollar), it increased by 15% compared to the same period of 2017 (90.2 million US dollar) (according to the data from Bilibili Investor Home).
2. Technology competence. A recent study(Kang et al., 2015) shows that it is widely believed that the Internet is a simple service system due to the degree of cash technology education. This allows users to carry more privacy protection options in the absence of understanding. Hence, any mistakes in platform network security can have a significant adverse impact on our business, operations and reputation, given the extreme trust of such users. Technologies could support operations and review content, reducing risk due to operational errors or content non-compliance.
3. Monitoring by the regulators. There were two events of penalties by the Chinese government in the history of Bilibili, which happened in 2012 and 2018 respectively (Hangzhou Municipal Bureau of Culture, Radio, TV, Film, Press and Publication Bureau, 2012 and The China Media Project, 2018). The reasons for them were both because of the violation of the regulations. Therefore, if the videos, games and other content formats in the Platform are deemed to be in violation of any laws or regulations of the People’s Republic of China, the business, financial condition and results of operations of Bilibili may be materially and adversely affected.
4. Quality of content provided in the platform. the prospectus of Bilibili (2018) points out that the PUG content attracts more users to the platform. In 2017, PUG video views accounted for 85.5% of its total video views, compared with 74.5% in 2016. However, the quality and quantity of the PUG content cannot be controlled effectively because the content is produced by users. The quality of the content will affect the number of users. Once the number of users declines, the company’s revenue will be affected. Moreover, the quality of the content also affects the regulatory results of government regulators, community culture and brand reputation. These aspects will directly affect the company’s revenue and development.

## Risk Matrix

There are reasons for the positioning of each risk as follows.

1. Distribution of income. As mentioned above, the revenue from mobile games accounted for a significant proportion of the total net revenue from 2015 to 2018. However, Bilibili has built a partnership with a number of famous game developers since 2018, such as GREE and Tencent.
2. Technology competence. The population of active users of Bilibili has been over 77.5 million per month since 2018 (according to Simple investor). If the service is unavailable or security issues due to technical reasons, the company’s revenue and reputation will suffer huge losses. However, Bilibili mentions that there is almost no such problems have occurred since the operation of the platform.
3. Monitoring by the regulators. Two serious penalties occurred in the company’s history, resulting in property damage and platform rectification.
4. Quality of content provided in the platform. Bilibili announced that the size of the content acceptance team would be increased. However, even with a large number of manual acceptance, there is no guarantee that the quality of a large amount of content will be fully guaranteed.

# Risk Management for Bilibili(2019) – Overview

This is actually a study topic in my master’s period. The relevant course is about business risk management, mainly by learning methods, frameworks of risk management and practise on real business projects or companies. Secondly, Bilibili, as an Internet platform that I have been using all the year-round and one of the ideal employment companies for me in the future, has become my research object in this practice. So I would like to introduce and review the contents of this meaningful practice (All reference resources used are before 2019, the ‘current’ mentioned below refers to the beginning of 2019, and the ‘future ‘refers to the second half of 2019 and beyond).

Bilibili is the first iconic online entertainment brand for young people in the People’s Republic of China. The company has been providing a content community based on animation and professional user-generated (PUG) video since 2009 and went public in the US in 2018. Bilibili points out that their strategies are to improve the content offerings and user experience on the platform and to enhance technologies and other relevant capabilities. According to Bilibili’s only one clear mission which is to enrich the daily life of Chinese young people, their target market is the online entertainment industry and the user positioning aims for Generation Z, which refers to individuals born from 1990 to 2009 in China. iResearch shows that China’s online entertainment industry market arrived at RMB205.8 billion as of the end of 2016 and kept a growing trend. CNNIC presents the result that the number of Internet users who were aged 10-39 in China accounted for 75.0% of the total number of Chinese netizens by December 2017, which reached 579 million. Moreover, the market share contribution to the online entertainment industry of the major part of them who were born between 1990 and 2009 is expected to increase from 45.8% in 2014 to 54.8% in 2017. iQIYI is a leading online entertainment platform, operating the largest TV video streaming service in China. Alexa has revealed the result that the traffic rank of the iQIYI website is 30 in China, which is the closest rank to Bilibili website (17) as the online entertainment platform. Hence, iQIYI is one of the main competitors of Bilibili in the Chinese market.

Bilibili Inc. has been operating its main product which is an online entertainment website ‘Bilibili.com’. It mainly targets young users, with ACG(Anime, Comic, Game) as the main content in the early stage. After more than a decade of development, content themes now cover many areas, including music, movies, science and technologies, lifestyle, games, and more. Bilibili also offers live streaming services in the form of streamers. Typically the topic is anime, daily life, game strategy, etc. It is a remarkable fact that most of the content is created and uploaded by users independently, which guarantees the diversity and creativity of the content. Apart from hosting content, the core feature of Bilibili is a subtitle comment system which displays user comments as streams of moving subtitles on a video playback monitor which are visually similar to a shooter game by ‘Danmu’. That is the name of these subtitles in Chinese. These subtitles are simultaneously transmitted in real-time to all viewers and create an experiential chat room in which users want to watch and play together. This highly interactive viewing experience increases user stickiness greatly. Due to the good market positioning and these novel and attractive features, the number of users has kept growing year by year.

However, because of the continuously growing number of users and market demand, and other uncontrolled factors like the policy terms, challenges and uncertainties keep increasing as well. The company has a detailed discussion of these in the prospectus(2018). The following roadmap shows the structure based on the detailed content of the prospectus, and each node is indexed by the page number for reading easily.