Working out a risk is a bit like trying to predict the future — you’ll never be spot on, but with careful thought, you can come pretty close.
Take driving to work. Some risks, like getting stuck in traffic, are high. To mitigate that risk, you might set out early. Other hiccups, like getting a flat tire, are less predictable. If it happens, you’ll probably still be late for work, but being prepared by keeping a spare tire in the trunk of your car will speed the process up and save you from having to call out a mechanic. The risk still affects your journey, but because you planned ahead, the snafu wasn’t as bad as it could have been.
We do unconsciously risk analysis every day. But for project managers, risk analysis is an important part of their job. Let’s take a closer look at risk assessment in project management.
What are risks, and what is risk assessment?
Risks are problems that could arise as the result of a decision. It’s important to identify them prior to project kick-off so you know what you’re up against. Once you know that, you can analyze the likelihood of said risks occurring and put measures in place to stop them in their tracks. And, if it’s too late, risk analysis can stop the issue from happening again.
Risk assessment is a process that provides project managers with an estimate of how severe a risk is.
For a project manager, this is especially useful because it shows them exactly where to focus their attention. This means they don’t end up giving too much time and energy to things that don’t necessarily need it while failing to pay attention to storm clouds gathering on the horizon.
The severity of a risk is defined according to two categories: the effect the risk could have on the project, and the likelihood of it happening. Then, there’s an optional third category: precision (we’ll go into what that means a little later on).
As well as different types of risk definition, there are different types of risk analysis — some more detailed than others.
Qualitative Risk Analysis vs Quantitative Risk Analysis
There are two types of risk analysis: qualitative and quantitative. When it comes to project management, they both sit in the planning stage, but the qualitative analysis comes after the quantitative if you’re doing both.
A qualitative risk analysis is subjective. The goal is to work out risk severity by predicting the likelihood and impact of a risk. It’s usually performed on all identified risks within a project, as well as for all types of projects. Risks are usually presented in a risk assessment matrix, which is then used to explain risks to relevant stakeholders. This risk assessment method is the most effective but is typically difficult to fund or budget for, due to their lack of numerical estimates. A quantitative risk analysis is objective. It relies on data, which is used to analyze risk to budget, deadline overruns, scope creep, and resource overruns. A quantitative risk analysis deals with numbers and is therefore limited by the data available. While a full quantitative risk analysis is always preferred (more on what that is a little further down), it’s not always possible or practical to roll out the big guns forContinue reading