What is risk analysis in project management?
Risk management is one of the most important areas of project management – and being able to identify & mitigate project risks is vital to the overall success of any project in your portfolio. So, what is risk analysis in project management and why is it important?
Risk analysis in project management
Risk analysis in project management comes after risk identification and risk category identification in the risk management process and involves examining how project outcomes & objectives could change due to the impact of the risks in question.
Risks need to be analysed in order to identify the qualitative & quantitative impact of the risk on the project(s) so that the appropriate actions can be taken to eliminate or mitigate them.
To analyse project risk, you’ll need to understand the probability of the risk event detailed, plus the impact of that risk – categorising appropriately.
Probability of Risk Occurrence
High probability: 80% ≤ x ≤ 100%
Medium-high probability: 60% ≤ x < 80%
Medium-Low probability: 30% ≤ x < 60%
Low probability: < 30%
Risk Impact – out of 100
High: 100
Medium: 50
Low: 10
By multiplying the impact with the probability, you’ll then come to a figure that will determine ‘risk exposure’ – risk exposure helping you identify the urgency of the response planning and reporting levels necessary.
A traffic light system (RAG status) – using red for high risk, orange or yellow for medium risk and green for low risk will further help you identify and understand project risks at a glance.
Risk analysis in risk mitigation
By analysing risk in this way – creating a value and a framework – you’ll better be able to plan for each potential risk and how your team can appropriately respond to these risks, should the event occur – enabling you and your team to lessen any impact to the project and ensure the project can reach completion.
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