A defining skillset of any effective project manager is their ability to assess and mitigate risk. Spotting bumps in the road, predicting outcomes and preventing failures are all part of the responsibility of managing a project successfully. Risk assessment can be an art form and there are a variety of ways to get the job done.
The broad definition of managing risk is the ability to identify and define any risk(s) associated with a decision and evaluating all possible outcomes and potential impacts of said risk. It’s the capacity to see problems as they arise, deal with them and try to prevent them from happening again.
There are two types of risk assessment: qualitative and quantitative. Qualitative risk assessment methods are the most effective but are typically hard to fund due to their lack of numerical estimates. In qualitative management, descriptive and categorical treatments of information are used in lieu of quantitative estimates. They are analytical evidence-based characterizations of risk, but still provide two primary functions:
- Identification of risk
- Risk characterization and analysis
A risk narrative is the starting point for any healthy assessment and is simply a way to identify and depict a specific risk. It includes a description of the four generic risk assessment types: categorizing hazard, consequences, likelihood and final risk.
When it comes to tackling the problems, there are a multitude of qualitative risk assessment methods one can use.
Methods for Analysis
Using a relative or descriptive scale to measure probability yields a variety of different ways to do so. Like how there isn’t a universal method to measuring temperature. The following are some of the more popular ways in which project managers assess risk qualitatively:
Risk Probability and Impact Assessment
This method involves looking into the likelihood of each risk and how it will affect separate project objectives like budget, schedule and performance. In this case, negative effects are “threats” and positive effects are “opportunities.”
This type of assessment is generally performed through meeting and interviewing stakeholders, investigating ongoing work and documenting the results of everything. The PM can then define the threats and opportunities on varying levels depending on how they will affect the project.
Qualitative Risk Assessment Matrix (RAM)
A probability and impact matrix is the first step to defining the rating scales for likelihood and impact of a particular risk. Ratings rules should be specified by the organization in advance so that the project manager knows what to prioritize.
The ultimate goal of the matrix is to identify which risks you need to develop a response for. Likelihood and impact are typically rated on the following scale:
- Very Low
- Very High
These scales are highly dependent on the specs of the projects and thus a matrix must be performed by a project manager for each task.
Grouping risks by their common causes can aid in sorting and prioritizing the problems. It helps to determine the areas of the projects that are most exposed to risk and work backwards from there. Categorizing risks allows project managers to view them in smaller, easy to manage groups—much like breaking up the tasks in a project.
In qualitative risk analysis, the impending threat of the risk itself must be taken into consideration. The risk ranking determined from the probability matrix combined with the risk urgency can give a project manager a final risk sensitivity rating that can help them better prioritize and manage projects.
The judgment of an expert in the field should never be overlooked. Interviews and risk facilitation workshops are just two ways in which you can connect with professionals on managing qualitative risk assessment.
Assessing risk is almost like predicting the future—it’s not an exact science. With the proper tools, like those from Clarizen, qualitative measures and an open mind, a skilled project manager will be able to avoid risk and continuously steer their projects to success.