Before being able to analyze the risk in your project, Jennifer said, you have to acknowledge that risk is going to happen in your project. You should at the very least, have a risk tracking tool or use a risk tracking template to identify and list those risks.
Here’s a shot of the whiteboard for your reference!
In Review – How to Analyze Risk on Your Projects:
Hopefully, you’re familiar with the basics of project risk management. Risks are anything that can potentially disrupt your project or your team. Since every project is unique, no two projects are likely to have the same risks. It’s up to managers and their teams to identify risks, prioritize their impact, and create mitigation plans where appropriate in case those risks become real issues. But Jennifer notes that you also have to understand what is meant by the word analyze in reference to project risk management. She notes people frequently confuse risk analysis with risk identification and risk management.
Benefits of Risk Analysis
To understand risk analysis, Jennifer noted the importance of examining risk in methodical detail. Why? There are several reasons.
- Avoid potential litigation
- Address regulatory issues
- Comply with new legislation
- Reduce exposure
- Minimize impact
Jennifer added that through her experience with risk management in projects, she has made several insights, such as:
- There’s no lack of information on risk
- Much of that information is complex
- Most industries have best practices
- Many companies have framework
- Risk analysis is done in extremes
How to Evaluate Project Risk
The process of evaluating project risk begins in the planning stages, but it must continue through every stage of the project. But to dig deeper, you need to perform both qualitative and quantitative risk analysis. Qualitative risk analysis is the process of prioritizing risks for further analysis or action. You do this by determining each risk’s likelihood or probability to occurring, as well as rating its impact on the project. Qualitative risk analysis is beneficial because not only do you reduce uncertainty in the project, but you also focus mostly on high-impact risks, for which you can plan out appropriate mitigation responses.
By contrast, quantitative risk analysis is a statistical analysis of the effect of those identified risks on the overall project. This enables team leaders’ ability to make decisions with reduced uncertainty, and supports the process of controlling risks.
Through qualitative and quantitative risk analysis, you can define the potential impacts risks by determining impacts to the following aspects of your project:
- Activity resource estimates
- Activity duration estimates
- Cost estimates
Thanks for watching!
Today, we’re talking about risk analysis, “How to Analyze Risk on Your Projects.” But before we start, I wanna stop and take a look at the word “analyze,” because so many times, I hear people interchanging different words, like risk identification, risk management, risk analysis. There’re three different words, three different things.
So the Whiteboard session today, we’re gonna talk about the analysis. When we analyze the risks, we’re examining methodically in detail. And why would we wanna do this? Well, there are several really big reasons why.
First of all, we’re trying to avoid any potential litigations, address maybe any regulatory issues, or comply with new legislation. Ultimately, we’re trying to reduce our exposure and minimize the impact of any risk.
So what are some insights that we’ve had in working with so many projects? Well, first of all, we found that there’s no lack of information out there about risk. But what happens is sometimes much of the information is very complex and can be quite intimidating.
Most industries have their own best practices, and many companies have their own framework. We found that the risk analysis can be done to extremes. On some projects, it’s not done at all because they feel like they don’t have any risk. Then on some projects, it’s done to the nth degree, I mean think about it, if you’re sending a rocket to the moon with astronauts, we want to protect those people.
So let’s look at where and when the risk analysis is done. Well, if we look at the project management process groups, the planning process is where we start looking at the risk, and it’s done throughout the entire project. So we develop our risk management plan, identify the risks, and those are captured in our risk register.
So as a reminder, the register identifies all the risks, the impacts, the risk response, and the risk level. We’re ultimately looking at what the potential impacts to the activity resource estimates, the activity duration estimates, possibly the schedule, the cost estimates, budgets, quality, and even the procurements.
So when we take the risk register, then we take those items and that’s where we do the detail analysis. We do that in two parts. The first part, we perform a qualitative risk analysis, and there what we’re doing is that’s a process of prioritizing the risk for further analysis or action, depending upon the probability and the impact of those risks. The benefits of that is it helps to reduce the level of uncertainty of those risks on the project and allows us to focus on the high priority risk.
The second piece is performing the quantitative risk analysis, and what that is, it’s a process for numerically analyzing the effect of those risks on the project. The benefit of that is it helps support in decision-making to reduce the project uncertainty. Again, that can help us, number one, plan the risk responses and control those risks.
So those are some great reasons why and a few tips on “How to Analyze the Risk on Your Projects.” So if you need a tool that can help you analyze the risk on your project, then sign up for our software now at ProjectManager.com.