Risk management is a vital skill for any project or business, but how do you decide which risks are the most important to address? Ranking risks helps you prioritize your actions and allocate your resources effectively. In this article, you'll learn some of the best methods and tools to rank risks based on their likelihood and impact.
Qualitative ranking is a simple and intuitive way to rank risks based on your judgment and experience. You can use a scale, such as low, medium, and high, or a color code, such as green, yellow, and red, to assign a rating to each risk. Then, you can plot the risks on a matrix or a chart to compare them visually. Qualitative ranking is useful when you have limited data or time, or when you want to communicate the risks to a broad audience.
Based on my experience, I recommend the involvement of experts from outside the project under study for projects with high stakes. Indeed, they have the advantage of mastering novelties and having a greater number of experiences in the context of similar missions allowing them to give a more precise judgment for qualitative variables.
Quantitative ranking is a more rigorous and objective way to rank risks based on numerical data and analysis. You can use formulas, such as expected monetary value (EMV), or tools, such as Monte Carlo simulation, to calculate the probability and impact of each risk. Then, you can rank the risks by their value or their effect on your objectives. Quantitative ranking is useful when you have reliable data and time, or when you want to justify your decisions with evidence.
Ranking risks typically involves assessing their potential impact and likelihood. One commonly used method in our industry is FMEA through which we get the Risk Priority Number (RPN), which considers severity, occurrence, and detection. The best method depends on your specific context and needs.
The question that arises before starting to process of estimating ranking : is the data available reliable or not in order to be able to calculate quantitatively and in a reliable way the probability and the impact. In this case, it is possible to use statistical tools to validate them. For example, validating the fact that the data is not impacted by the effect of a change of employee (for example in an industrial context: the data is impacted following a change of employee working on the machine) or of place of work or even a change of the machine itself.
Hybrid ranking is a combination of qualitative and quantitative methods that allows you to balance the benefits and limitations of both approaches. You can use qualitative ranking to identify and categorize the risks, and then use quantitative ranking to refine and validate your ratings. Alternatively, you can use quantitative ranking to generate and estimate the risks, and then use qualitative ranking to adjust and communicate your results. Hybrid ranking is useful when you have mixed data and time, or when you want to enhance your accuracy and credibility.
Using hybrid ranking approach gives credibility to the process at the start. So it is important to think about updating the Qualitative / Quantitative combination and refining the method, if necessary, as part of the project risk monitoring. But what if we don't have enough time and we have to decide in a hurry? In this case, managers are obliged to decide based on the available data and then refine and as quickly as possible, which is why the anticipation of risks will allow a better estimate and a more refined classification communicated in a professional manner. .
Ranking criteria are the factors that influence how you rate and compare the risks, which can vary depending on context, goals, and preferences. Common criteria include the likelihood of a risk occurring, the impact of the risk on scope, schedule, budget, quality, or reputation, the urgency of the risk and its potential consequences, the controllability of mitigating or avoiding the risk, and the interdependence of the risk with other risks or factors. It is important to define and document your ranking criteria before you start ranking risks and review and update them as needed.
One way I rank risks is to use a 2x2 matrix using impact and probability. - Low impact, low probability - lowest priority - Low impact, high probability - low priority - High impact, low probability - medium priority - High impact, high probability - highest priority I weigh impact more than probability. Highest priority items have mitigation strategies and contingency plans. I monitor these closely throughout the project lifecycle. They can threaten the success of my project. I ensure medium priority items have a mitigation strategy or contingency plan, at a minimum. Low and lowest priority risks should be taken care of during execution. After safe guards are in place, these are archived.
Ranking tools are the techniques and software that help you apply your ranking methods and criteria. These can range from simple to complex, based on your needs and resources. Some common tools include risk registers, which are documents that list and track risks and their ratings, as well as risk matrices, maps, and scorecards. Additionally, there are programs that automate the ranking process and provide features like data collection, analysis, visualization, and reporting. When selecting your ranking tools, consider your objectives, constraints, and preferences.
Ranking risks is a continuous process that requires regular review and revision. To improve the performance and outcomes of your ranking process, involve stakeholders and experts to gain their input, feedback, and buy-in. Additionally, use multiple methods and criteria to rank risks from different perspectives and dimensions. Validate your rankings with data and logic to ensure consistency and accuracy. Communicate your rankings clearly to your audience while explaining assumptions and limitations, and update as new or existing risks change. Ultimately, ranking risks is key for risk management to focus on the most critical and relevant risks for your project or business. By using the best methods, criteria, and tools to rank risks, you can optimize decisions and actions, as well as increase your chances of success.