Before you’re able to analyze the risk in your project, you have to acknowledge that risk is going to happen in your project. By planning for risks, you begin the process of knowing how to identify, monitor and close out risks when they show up in your project.
Part of that process is risk analysis. It’s a technique that helps you to mitigate risk. There are also tools that can assist. You should at the very least, have a risk tracking tool or use a risk tracking template to identify and list those risks.
Definition of Risk
Hopefully, you’re familiar with the basics of project risk management. (if not, more in a bit.) 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 it’s important that you also have to understand what is meant by the word analyze in reference to project risk management.
Risk Analysis vs. Risk Identification vs. Risk Management
People frequently confuse risk analysis with risk identification and risk management. Let’s clear that up before we continue.
What Is Risk Analysis?
Risk analysis is the process that figures out how likely that a risk will arise in a project. It studies uncertainty and how it would impact the project in terms of schedule, quality and costs if in fact it was to show up. Two ways to analyze risk is quantitative and qualitative. But it’s important to know that risk analysis is not an exact science, it’s more like an art.
What Is Risk Identification?
Risk identification is also a process, but in this case it lists all the potential project risk and what 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, 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.
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
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 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
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 of occurring, as well as rating its impact on 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 .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.
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. 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 team leaders to make decisions with reduced uncertainty, and supports the process of controlling risks.
Quantitative risk 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, and creates cost, schedule or scope targets that are realistic.
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
- Cost estimates
ProjectManager.com Helps Your Risk Analysis
ProjectManager.com is a cloud-based 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 to manage your risk. Collect all the data you assembled associated with the risk to a task, which has unlimited file storage. Whoever on your team is tasked with resolving the risk 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.
Learn More About Risk Analysis
If we’ve only whet your whistle when it comes to discussing risk analysis on project, don’t worry. Watch project management guru Jennifer Bridges, PMP, as she helps you visualize how to analysis risks on your project.
Here’s a shot of the whiteboard for your reference!
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.