Before you’re able to do a project risk analysis, you have to acknowledge that risk is going to happen in your project and you’ll need to be prepared with a risk management plan. This plan is the tool project managers use to oversee the risk management process. It has five steps: risk identification, analysis, prioritization, response and monitoring.
Risk analysis is very important because it sets the stage for your risk management plan. There are many risk analysis methods and tools that you need to know about. But before we get to that, let’s start with the definition of risk analysis.
What Is Risk Analysis?
Risk analysis is the process that figures out how likely 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 show up. 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.
Related: Risk Tracking Template
You should have a risk tracking software tool to identify and list those risks. ProjectManager, for instance, lets you track risks in real time. We have risk management features that add risks to your plan. You can then track your progress and performance with real-time dashboards. Unlike lightweight tools, our dashboard requires no setup, it’s plug and play. Get started with ProjectManager today for free.
Types of Risk Analysis
There are two main types of risk analysis, qualitative and quantitative risk analysis. Let’s learn about these two approaches.
Qualitative Risk Analysis
The qualitative risk analysis is a risk assessment done by experts on the project teams, who use data from past projects and their expertise to estimate the impact and probability value for each risk on a scale or a risk matrix.
The scale used is commonly ranked from zero to one. That is, if the likelihood of the risk happening in your project is .5, then there is a 50 percent chance it will occur. There is also an impact scale, which is measured from one to fine, with five being the most impact on the project. The risk will then be categorized as either source- or effect-based.
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 base for quantitative risk analysis, and it’s beneficial because not only do you reduce uncertainty in the project, but you also focus mostly on high-impact risks, for which you can assign a risk owner and plan out an appropriate risk response. Get started with qualitative risk analysis with our free risk assessment template.
Quantitative Risk Analysis
By contrast, quantitative risk analysis is a statistical analysis of the effect of those identified risks 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.
Risk Analysis Methods
There are several risk analysis methods that are meant to help managers through the analysis and decision-making process. Some of these involve the use of risk analysis tools such as charts and documents. Let’s dive into these risk analysis methods and how they can help you.
Bow Tie Analysis
This qualitative risk analysis method is used to identify causes and consequences for all potential project risks. The project management team must first identify risks that might affect the project and then think about causes, consequences and more importantly, a risk mitigation strategy for them. It’s a very versatile method that can be used in any industry.
Risk Analysis Matrix
The risk analysis matrix assesses the likelihood and the severity of risks, classifying them by order of importance. It’s main purpose is to help managers prioritize risks and create a risk management plan that has the right resources and strategies to properly mitigate risks. Risk likelihood is measured on a relative scale, not a statistical one, which makes it a qualitative risk analysis tool.
Related: Free Risk Analysis Matrix Template
A risk register is a crucial project management tool to document project risks. It’s a document that lists all the potential risks that could occur during the project execution phase, as well as critical information about them.
It’s meant to be used as an input for the risk management plan, which describes who’s responsible for those risks, the risk mitigation strategies and the resources needed. Creating a risk register usually involves several, reliable information sources such as the project team, subject matter experts and historical data.
SWIFT stands for Structured What If Technique. It’s a risk analysis method that focuses on identifying potential risks associated with changes made to a project plan. As its name suggests, team members have to come up with any “what if” questions they can to find out all the potential risks that could arise.
Risk Analysis Templates
There are several quantitative and qualitative risk analysis methods and that can be confusing. On top of that there are several tools that can be used for different purposes. For those reasons, we’ve prepared some free risk analysis templates to help you through the risk analysis process.
This risk register template has everything you need to keep track of all the potential risks that might affect your project as well as their probability, impact, status and more.
This risk matrix template lets you visualize all your project risks in one color-coded graph to classify them by likelihood and severity. This will allow you to better understand what are the most critical risks for your project.
Risk Analysis Examples
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 risk 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 detailed analysis. We do that in two parts. In 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 benefit 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 decision-making to reduce the project uncertainty. Again, that can help us, number one, plan the risk responses and control those risks.
Benefits of Risk Analysis
To understand risk analysis, note 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
- Risk analysis is an important input for decision-making during all the stages of the project management cycle
Project managers who have some experience with risk management in projects are a great resource. We culled some advice from them, such as:
- There’s no lack of information on risk
- Much of that information is complex
- Most industries have best practices
- Many companies have risk management framework
- Risk analysis is done in extremes
Risk Identification & Management
People frequently confuse risk analysis with risk identification and risk management. Let’s clear these project management concepts up before we continue.
What Is Risk Identification?
Risk identification is also a risk management process, but in this case, it lists all the potential project risks and their characteristics would be. If this sounds like a risk register, that’s because your findings are collected there. This information 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 Management?
Finally, risk management is the overall process that project managers use to minimize and manage risk. It includes risk identification, risk assessment, risk response development and risk response control.
Using Risk Analysis in Project Management
If we’ve only whet your whistle when it comes to discussing risk analysis on a project, don’t worry. Watch project management guru Jennifer Bridges, PMP, as she helps you visualize how to analyze risks on your project.
Here’s a shot of the whiteboard for your reference!
Thanks for watching!
How ProjectManager Helps Your Risk Analysis
ProjectManager is a cloud-based work and project management software that gives you real-time data to track your project and whatever risks arise during its execution.
Our online Gantt chart is a great tool to schedule projects, assign tasks and link dependencies, but it can also be used as a risk management tool. Collect all the data you assembled associated with the risk to a task, which has unlimited file storage. Whoever on your team is the risk owner for a task can comment at the task level and @ other team members, who are then notified immediately by email. You have more control over the management of project risk.
You’ve analyzed the risk, now you have to identify it. Our real-time dashboard automatically captures project data and turns it into easy-to-read graphs and charts that track six project metrics. It’s like having an instant status report. Even better, unlike lightweight competitors, our dashboard requires no setup. It’s ready when you are.
Risk will reveal itself in your project as an issue and you need to identify and resolve it quickly. Our kanban boards are a visual workflow tool that has customized workflows and task approvals. You can have your risks listed and assigned an owner so if they show up they can be dealt with swiftly. Set triggers that release actions automatically to help you capture issues fast. Then with our task approvals, only someone authorized to change the status can define the issue as resolved.
Analyzing and resolving risk is a team effort. Our software is collaborative to the core. Teams can comment, share files and get updates from email notifications and in-app alerts. There’s one source of truth and you’re always getting real-time data so everyone is on the same page. Get started with ProjectManager today for free.