Risk is inevitable. It’s true in our day-to-day lives and especially true in project management.
Murphy’s law says anything that can go wrong will go wrong, which leaves us to either accept our inevitable fate or find ways to prevent or mitigate it.
In the world of project management, you rarely leave things to fate. Risk analysis is an essential process that, when performed correctly, will keep your project on track and keep your stakeholders happy.
In this article, we’ll define risk analysis and explain how you can strike the right balance as you conduct one yourself:
What is risk analysis?
Risk analysis is the process of examining how your project’s outcomes and objectives could change due to the impact of potential risk events.
It’s all about figuring out what could go wrong and finding ways to either prevent it or soften the blow. It also gives your team and stakeholders confidence that you’re prepared for any obstacles that may present themselves.
In the project management process, risk analysis often originates in the planning process. However, risk analysis is never truly complete since a new threat can manifest each day throughout the project’s lifecycle.
As they surface, risks are captured in the risk register, which identifies the types of risks, their potential impact, and how you’ll respond to them should they surface.
Potential risk impacts can include procurements, quality, budget, cost estimates, schedule, activity duration estimates, and activity resource estimates.
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What are the benefits of risk analysis?
A comprehensive risk analysis has many benefits, including:
- Reducing exposure to the organization or the project itself
- Avoiding litigation by proving you did your due diligence
- Addressing any regulatory issues or complying with legislation
- Being proactive about minimizing the impact of potential risk
What’s the difference between risk analysis, risk management, and risk identification?
Although they sound similar, these words mean different things and shouldn’t be used interchangeably.
Risk identification is a process that lists every potential project risk and its corresponding characteristics.
As you collect your findings, you typically track them in a risk register for centralized storage and analysis.
Here’s an example of a risk register in staging-mondaycomblog.kinsta.cloud:
The bulk of risk identification happens at the beginning of the project, but it’s an iterative process that continues through the entire project’s life cycle.
Risk analysis is a process that determines the likelihood a risk will arise in the project.
With it, you study uncertainty and how potential risks impact the project’s schedule, costs, and quality.
Risk analysis is more like an art form than an exact science. Experience plays a big factor in getting it right.
Risk management uses the findings identified and analyzed to minimize, mitigate, or prevent potential risk. It essentially takes it from planning to action.
As you can see, the 3 risk areas combine together to create a logical flow of risk mitigation. You identify the risks, analyze your findings, and manage them. As potential risks present themselves, you go through the flow again to make sure you’re as prepared as possible.Types of risk analysis
Most industries have their own best practices, and most companies also have their own special risk analysis framework in place. Beyond that, there are 2 major types of risk analysis:
1. Quantitative risk analysis
A detailed quantitative risk analysis numerically analyzes the effects of identifiable risks on the project’s objectives. Essentially it assigns numbers — such as a 2-week delay or a $10,000 cost — to risks to help you evaluate them without bias.
Ultimately, the benefit of quantitative risk analysis is to support decision making and control risks, which will also reduce project uncertainty.
A quantitative risk analysis will determine all the possible outcomes for a project should the potential risk occur.
From there, it will figure out the probability that the project will meet its outcomes despite the risk occurrence. The analysis helps ensure the project’s schedule, scope, and costs are realistic.
2. Qualitative risk analysis
Quantitative risk assessments are always preferred but aren’t always practical or completely possible.
On the other hand, qualitative risk assessments are always possible and typically take considerably less time and resources than a standard quantitative analysis.
A qualitative risk analysis provides more general estimates of the probability of risks alongside their potential impact — such as a high probability of a severe impact.
Doing so helps:
- Reduces the level of uncertainty
- Focuses on high-priority risks
- Helps plan risk responses
Guidelines used to analyze risk
Here are 4 areas to consider when analyzing risks:
1. Probability of risk occurrence
Typically, a risk analysis will rank risk occurrence using a scale from zero to one. If the likelihood of a risk occurring in your project is .75, then you have a 75% chance it will occur.
The probabilities are often grouped as follows:
- High: (80% ≤ x ≤ 100%)
- Medium-high: (60% ≤ x < 80%)
- Medium-Low: (30% ≤ x < 60%)
- Low: (0% < x < 30%)
2. Risk impact
A similar scale is common for the corresponding impact scale. You may have a numerical rating scale from zero to one hundred, a purely qualitative scale, or some combination of the 2, such as:
- High: catastrophic (Rating A – 100)
- Medium: critical (Rating B – 50)
- Low: marginal (Rating C – 10)
Even with a high probability, a risk with a low impact isn’t something to stress about.
It should live in your risk register with a corresponding action plan, but its impact is minimal to your project’s success.
Naturally, a catastrophic rating is something you should keep a steady watch on. That kind of risk can derail the whole project.
3. Risk Exposure
Risk exposure is essentially a calculation. It takes the impact rating above and multiplies it by the risk probability.
Here’s a nice little visual heat map that shows you where the danger zone lies in red and orange to a calmer, less intense yellow and happy green.
4. Risk Occurrence Timeframe
Now that you’ve got a good grip of the impact and probability, it’s time to look at when such risks may surface.
- Near: now through 1 month
- Mid: 2 through 6 months
- Far: greater than 6 months
The timeframe of when a risk might occur will affect your plan for monitoring and managing the risk.
staging-mondaycomblog.kinsta.cloud makes risk analysis feel easy
Risk analysis and management are rapidly becoming some of the more challenging aspects of managing projects. While we can’t predict the future, we can make it more predictable with the proper processes.
One way to keep all your risk in focus is by storing it all in a digital workspace like staging-mondaycomblog.kinsta.cloud.
For instance, a risk issue log board (as shown below) acts as a digital version of a risk log or risk register.
A risk register is a tool used in both project management and risk management to identify possible risks in a project.
Typically, it’ll include the nature of the risk, the risk level, who’s responsible for the risk, and any mitigation efforts.
Next up, we have the risk assessment and response (shown below), which showcases the current assessment of risk, including the time impact, quality impact, and cost impact, which serve as guides to evaluate both the likelihood and impact of such risks.
Finally, we have a risk action plan (shown below), which is an integral step in the risk monitoring and control process.
Risk action plans tackle any lingering risk that requires a long-term, planned, and managed approach.
You can take it all a step further by incorporating your risk logs in a staging-mondaycomblog.kinsta.cloud dashboard, which gives it maximum visibility.
You may be wondering, “what else does staging-mondaycomblog.kinsta.cloud do?”
Great question!
We’re experts in tackling risk but where we really shine is project management. Here are a few more must-have features you can expect:
- Our stunning dashboards are highly customizable with dozens of custom column types, so you can tailor-make your risk process to fit your organization’s unique needs.
- Onboarding is effortless thanks to our streamlined user-interface and straightforward drag-and-drop navigation features.
- Transparency is our highest priority, and tagging, in-app messaging, and real-time dashboard guarantee everyone’s always on the same page.
- 8 unique data visualizations, including the option for Gantt charts and Kanban boards so you can visualize your data in a manner that fits your project best.
Final Thoughts
As you can see, we take both risk analysis and project management very seriously.
We believe the details matter, and that’s ingrained in every inch of staging-mondaycomblog.kinsta.cloud so you can keep track of what matters most.
Can we tempt you with your very own Risk Register Template?
With a few minutes of set up, you could transform the way your company tackles risk. And with a 14-day free trial, what have you got to lose?
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