This video explains methods for qualifying and quantifying your risks, to determine which specific risks you should examine further and incorporate into your overall risk management plan.
- All these risks, it's just too much. They're making me crazy. How could you manage a project without spending 120% of your time managing risk? The answer is perform a qualitative risk analysis to prioritize your risks. To do so, perform a quick high-level assessment of their probability and impact. Here's my approach. First, assess the impact of each risk. Determine if each risk would have a high, medium, or low project impact.
The impacts you consider should include cost, schedule, and deliverable quality. Second, do the same for probability, high, medium, or low. Keep it simple. The point is to get a quick high-level ranking for all your risks. It's a filter to help you work out which risks are worth spending your time on. Now, the next step, sort the results. This will give you a high-level reference for which risks need to be examined further.
You'll want to address your high probability, high-impact risks first, then look at your risks rated with lower probabilities and impacts. For all of your risks with low ratings, you're probably not going to examine them much further, and that's okay. After you've performed a qualitative analysis and identified the risks you should consider managing, then you conduct a quantitative risk analysis on your top-ranked risks. Quantitative analysis is the process that informs you how much you could spend to address a risk.
For example, you don't want to spend $10,000 to address a risk that will cost you $5,000 if the risk event occurs. Here are my steps for quantitative analysis. First, refine the probability for each risk occurring. Because we're looking for a more refined estimate, assign a probability in increments of 10. So, 10%, 20%, and so forth. Second, estimate the cost of your project if a risk occurs.
This could be hard to estimate, but give it a try. The third step is to multiply your estimates for the probability and cost impact for each risk and sort the result. This will highlight your most important risks. For example, Risk A has a probability of occurring of 70%, and an impact of $10,000. The resulting answer would be 70% of 10,000 or $7,000. If Risk B had a probability of 30% and a cost impact of $150,000 the result would be 30% of $150,000 or $45,000 so Risk B should be addressed before Risk A.
The last step is to take your most important risks and ask, if I was going to address this risk, how much would this cost? There could be a number of ways to address a risk. However, the greater the potential impact, the more analysis you'll want to perform. So that's it. Understanding which risks you need to manage and determining how much you can spend to address them is vital for proper project risk management. The key is to be methodical.
Categorize and address your most vital risks and save yourself from the risk of going crazy.
Note: This course follows the latest guidance from Project Management Institute, Inc., as outlined the PMBOK® 6 Guide.
- Explore why dealing with risks needs to be part of the everyday process used to manage a project.
- Learn to outline the most common, pragmatic approaches to identifying risks specific to a project.
- Recall methods for qualifying and quantifying your risks to determine specific risks and manage their costs.
- Examine the primary considerations for a project risk plan and what components should be included in every plan.
- Assess techniques that help you identify the overall risk a project presents to your business.
- Examine several risk analysis and filtering examples that help ensure you've addressed individual risks properly on your project.