RISK ANALYSIS TECHNIQUES

Risks are anything that can potentially disrupt any component of your project plan, such as your scope, schedule, costs, or your team. Since every project is unique, no two projects are likely to have the same risks.

We have to identify risks, prioritize their impact, and create risk management plans where appropriate in case those risks become real issues. But it’s important that you also have to understand what is meant by “risk analysis” in reference to project risk management.

In a previous article, I had elaborated on the "Risk Identification process" of project management.

Risk Analysis v/s. Risk Identification v/s. Risk Management

We often get confused with different Risk terminologies like Risk analysis V/s Risk identification V/s Risk management.

What Is Risk Identification?

Risk identification is to lists all the potential project risks and what their characteristics would be. The information gathered during the process will then be used for your risk analysis. Though this process starts at the beginning of the project planning phase, it’s an iterative process and continues throughout the project life cycle.

What Is Risk Analysis?

Risk analysis is the process that figures out how likely that risk will arise in a project. It studies the uncertainty of potential risks and how they would impact the project in terms of schedule, quality, and costs if, in fact, they were to realize at any stage during the project. Two ways to analyze risk are Quantitative and Qualitative. But it’s important to know that risk analysis is not an exact science, so it’s important to track risks throughout the project life cycle.

What Is Risk Management?

Finally, risk management is the overall process that project managers use to minimize and manage risk. It includes risk identification, risk analysis, risk response development, and Monitoring and implementing risk responses.

Benefits of Risk Analysis:

There are certainly many benefits to why we should analyze the Risk. some of the reasons include.

• Avoid any potential issue
• Address any regulatory issues
• Help to Reduce risk exposure
• Minimize Risk impact and
• Input for decision making during all the stages of the project management cycle

Risk Analysis Process:

As mentioned before, the risk analysis process is a part of the broader risk management plan that project managers must oversee through every stage of the project life cycle. The risk analysis process has three main steps as per Project Management Institute(PMI):

1. Identify Risks
2. Perform Qualitative Analysis
3. Perform Quantitative Analysis

Once you’re done with these steps you’ll be ready to assign risks, plan risk responses, and monitor risks until your project is complete.

Qualitative Risk Analysis:

Qualitative risk analysis is a risk assessment technique that uses data from past projects and team members' expertise to estimate the impact and probability value for each risk on a scale or a risk matrix.

It's a process of prioritizing individual project risks for further analysis or action by assessing their probability of occurrence and impact as well as other characteristics.

The key benefit of this process is that it focuses efforts on high-priority risks. This process is performed throughout the project.

The scale used is commonly ranked from zero to one. That is, if the likelihood of the risk happening in your project is 0.5, then there is a 50 percent chance it will occur. There is also an impact scale, which is measured from one to five, with five being the most impact on the project. The risk will then be categorized as.

Risk =Probability X Impact

Once risks are identified and analyzed, a project team member is designated as a risk owner for each risk. They’re responsible for planning a risk response and implementing it.

Qualitative risk analysis is the basis for quantitative risk analysis, with this not only do you reduce uncertainty in the project, but you also focus mostly on high-impact risks which can then be analyzed in detail in Quantitative risk analysis.

Quantitative Risk Analysis:

Quantitative risk analysis is a statistical analysis of those risks identified during the qualitative risk analysis on the overall project. This helps project managers and team leaders to make decisions with reduced uncertainty and supports the process of controlling risks.

Quantitative risk analysis counts the possible outcomes for the project and figures out the probability of still meeting project objectives. This helps with decision-making, especially when there is uncertainty during the project planning phase. It helps project managers create cost, schedule, or scope targets that are realistic.

The Monte Carlo simulation is an example of a quantitative risk analysis tool. It’s a probability technique that uses a computerized method to estimate the likelihood of a risk. It’s used as input for project management decision-making.

Through qualitative and quantitative risk analysis, you can define the potential risks by determining impacts to the following aspects of your project:

• Activity resource estimates, Activity duration estimates, Project schedule, Cost estimates etc.

Conclusion: Risk Identification and Risk analysis are important inputs to the overall Risk management process. No risk is small or big and needs to be either qualitatively or Quantitatively analyzed to determine their impact on your project.