Presentation: Risk Assessment Techniques
Methods of Risk Assessment
Different techniques can be used to assess the probability and impact of risks.
These techniques are especially useful for assessing and analyzing the medium probability and/or medium impact risks. Qualitative risk analysis, semi-quantitative risk analysis, and quantitative risk analysis are three main methods for completing this required assessment.
The methods and techniques you use to assess the probability and impact will vary based on the size and duration of the project, the organization’s tolerance for risk, and the constraints of the project. You need to understand these risk management influencers before you go into more detail in your analysis.
Risk Tolerance Influences the Impact of Risk
The tolerance for risk is a critical influencer. Not only does the organization have its own cultural perspective toward risk, but your team members, customers, stakeholders, and sponsor also have their own tolerance levels.
Those tolerance levels will vary based on the situation. For example, if the accounts receivable department needs a new billing system functional within six months because the current system is outdated and difficult to use, they will have a lower tolerance for the risk of schedule overrun than the human resources department, which is comfortable with the current system.
Qualitative Risk Analysis
Qualitative risk analysis is the process of assessing risks using a very simple scale. It is the method that is most intuitive and most commonly used.
It is typically completed using personal and organizational experience as opposed to mathematical models. This technique will address the majority of the risks in small to medium projects. This technique will give a very good high-level overview for larger projects, but it will likely need to be followed by more quantitative techniques.
Qualitative risk analysis is done by assigning a value of high, medium, or low to each possible risk that was identified. Next, plot the values on a quadrant graph with probability and impact as the axes. The risks falling into the high impact/high probability quadrant should be considered high priority risk events and addressed aggressively.
The risks that fall into the low impact/low probability quadrant can be considered lower priority risks and addressed less aggressively (and in many cases, they can be ignored). The risks can also be plotted in a matrix.
The results of qualitative risk analysis should be tested and confirmed by reviewing the assumptions about the risk, the level of accuracy about the impact, and the experiences used to determine the probability.
Semi-quantitative Risk Analysis
Semi-quantitative risk analysis is when a numerical value is assigned to the probability and impacts instead of a high, medium, or low ranking. This provides a different perspective into the priority of a risk and is especially effective for analyzing the medium probability and/or medium impact risks. It can be used in conjunction with qualitative risk analysis as another technique for prioritizing risks.
A risk score can be calculated for each risk by multiplying the probability value by the impact value (P*I).
The higher the score, the more attention that should be paid to the risk. Another technique is to assign a value to both the probability and the impact in the range of 0.0 to 1.0.
Then calculate probability plus impact minus the sum of probability times impact, or P + I – (P*I). Plot and compare the results of either or both of these calculations to find the most critical risks to be managed.
Use a scoring method that is understandable to your project team, stakeholders, and sponsor. Focus on the most critical constraints of the project, and put your attention there.