Qualitative Risk Analysis and Assessment

Qualitative Risk Analysis is a simple and cost-effective way to manage project risks.

What is Risk Analysis?

Once you have identified the risks that could affect your project, you need to determine which ones you will spend time and money on.

Risk analysis is the process of prioritizing risks based on the probability of the risk occurring and the impact it would have on the project.

There are two primary methods of risk analysis you can use on your project...

  • Qualitative Risk Analysis
  • Quantitative Risk Analysis

The main difference between qualitative and quantitative risk analysis is that the former uses a relative or descriptive scale to measure the probability of occurrence whereas quantitative analysis uses a numerical scale.

For example, a qualitative analysis would use a scale of "Low, Medium, High" to indicate the likelihood of a risk event occurring.

A quantitative analysis will determine the probability of each risk event occurring. For example, Risk #1 has an 80% chance of occurring, Risk #2 has a 27% chance of occurring, and so on.

The rest of this article will focus on using qualitative analysis to prioritize and decide which risks your project should focus on.

The Risk Assessment Matrix

A Risk Assessment Matrix (RAM) is a tool to help you determine which risks you need to develop a risk response for.

The first step in developing a RAM is to define the rating scales for likelihood and impact.

In a qualitative analysis, likelihood or probability is measured using a relative scale. Here's an example Likelihood Scale definition...

Rating Likelihood Description
1 Very Low Highly unlikely to occur. May occur in exceptional situations.
2 Low Most likely will not occur. Infrequent occurrence in past projects.
3 Moderate Possible to occur.
4 High Likely to occur. Has occurred in past projects.
5 Very High Highly likely to occur. Has occurred in past projects and conditions exist for it to occur on this project.

Here's an example Impact Scale definition...

Rating Impact Cost Schedule
1 Very Low No increase in budget No change to schedule
2 Low < 5% increase in budget < 1 week delay to schedule
3 Moderate 5-10% increase in budget 1 - 2 weeks delay to schedule
4 High 10-20% increase in budget 2 - 4 weeks delay to schedule
5 Very High > 20% increase in budget > 4 weeks delay to schedule

Remember, these scales are very dependent on the specific details of your project.

For example, a "Low" likelihood of occurrence for one project may mean a risk event is unlikely to occur within the next 10 deployments. With another type of project "Low" may mean that a risk event is unlikely to occur within the next year.

The impact scale for your project could also include other considerations such as scope, political, and employee impacts.

With your rating scales prepared, you can create a Risk Assessment Matrix to help you categorize the Risk Level for each risk event.

Risk Assessment Matrix Risk Assessment Matrix

For example, if a risk event has a Moderate Likelihood of occurring and a High impact, it would be considered a Moderate Risk using the RAM shown above.

Qualitative Risk Assessment

Using your RAM and Rating Scales, you can then analyze the likelihood of each risk event occurring and its impact to determine what Risk Level it is at. This will give you the information you need to prioritize your list of project risks.

A qualitative risk assessment can also help you determine if there are any specific types or categories of risks that would require special attention or any risk events that need to be handled in the near-term.

The most challenging aspect of performing a qualitative risk analysis is defining your rating scales. But once that has been done, you can use them for the duration of the project to effectively manage your project's risks in a timely manner.

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