What is a risk assessment?
Project teams make use of risk assessment, a type of qualitative evaluation of danger data and the two components of chance and impact, to recognize, arrange, rank in order of importance, and deal with risks prior to their occurrence.
A “risk reassessment” is the process of evaluating the existing risk assessment again in light of any changes made to the project or the risk management strategy.
The quality of the data used in the initial and any following assessments is directly linked to the exactness of the risk assessment and the decisions made from it.
What are Risk Assessment PMP and Risk Reassessment PMP?
PMP® credential holders have demonstrated their knowledge regarding risk assessment and the potential for expensive consequences if a risk assessment is not performed. In order to pass the PMP certification exam, individuals must be aware of the value of risk assessment and have the ability to utilize a probability and impact scoring matrix to identify the significance of the risk.
In the PMP exam, the terms “risk assessment PMP” and “risk reassessment PMP” are utilized as informal expressions which refer to evaluating the identified risks and analyzing them using qualitative information, such as the likelihood of events happening, to determine the potential effect. Project managers use the risk score, which they have calculated, as a factor in deciding how to respond to potential risks.
When is a Risk Assessment needed?
It is important to recognize potential risks early on in the project, and then quickly move on to analyzing those risks. Project groups should evaluate potential risks on a regular basis throughout the duration of the project. Revisiting the risk register is a helpful reminder to revise the related risk assessment. The extent of the project and its risk management strategy will determine how often the evaluation should take place (projects with a larger scope will necessitate more reviews; correspondingly, those with a smaller scope need fewer reviews).
Why is a Risk Assessment important?
An evaluation of potential hazards is essential for the accomplishment of a venture because it places the group in a position of readiness. Risk assessment, when conducted with the use of validated methods and high-quality materials, might be time-consuming, but it can safeguard against potentially damaging risks and offer chances to capitalize on advantageous risks. At the PMI conference, it was emphasized that organizations that understand the importance of having a risk assessment template are the most successful. Risk assessment is essential for controlling cost, timelines, and quality.
Example use of Risk Assessment: hurricane impacting town
As an illustration of how a risk assessment can be put into practice, we will look at a small town situated on the east coast of North Carolina. The seaside municipality has been affected by hurricanes on multiple occasions in the last half century. A hurricane is a powerful storm that originates in the ocean and moves onto land, resulting in severe flooding, thunderstorms, and destructive winds. The National Weather Service produces yearly predictions of what places are likely to experience hurricanes, in addition to the amount of hurricanes and their intensity.
The town manager (or “project manager”) and the town administration (or “project team”) are aware that a hurricane is likely to occur, but they are uncertain of when it will happen and how powerful it might be. The project manager and team determine that hurricanes are a risk type in the category of weather events. The project team then looks for possible dangers, e.g. floods that could lead to destruction of the structure. The group evaluates each danger based on the possibility of it happening, the effect it would have if it did happen, and the probability-impact rating (considering the danger’s importance on the venture). A risk assessment matrix is included in the project management and risk management paperwork to store the data.
An illustration of this would be that after the project manager and group recognize the danger of water damage to downtown structures owing to flooding caused by a hurricane, they carry out a risk assessment. The team applies usual methods to ascertain the likelihood of the particular hazard (flooding) and the effect if it does happen (water destruction to structures). The project group makes sure that the data they use, such as National Weather Service forecasts for hurricanes, is accurate before estimating the likelihood of an event. The project team reviews cost and quality data from sources such as town records to analyze the likely effect the project would have on town property. The project risk assessment matrix is used to arrange and evaluate the data and risk scoring, which is then reported to those with an interest in the project.
In this risk example, the project team:
- determined the appropriate risk categories (natural disasters)
- determined the types within the category (hurricane storms)
- identified a risk event (hurricane bringing flooding to downtown buildings),
- assessed the impact of that risk (flooding damages ground floors),
- assessed the probability of the impact (flooding may be higher or lower but always occurs with hurricanes),
- documented the risk information, including risk scores in the risk assessment matrix,
- communicated the risk assessment results to the team and stakeholders, and then
- used the risk assessment matrix as an input for risk response planning (making sandbag materials available when needed and training people to set them up).
By using this illustration, you can observe how the risk assessment helps the project team to detect, classify, rate, and handle/evade/utilize risks before they happen. A risk assessment is a preventive measure in which the potential risks are identified and examined in order to keep expenses low, minimize any detrimental effects, and secure the project (in this case, town buildings).
Why You Must Create a Risk Assessment Matrix?
Constructing a risk matrix may take a bit of effort, but the rewards of doing so make it worth it. Let’s review some of them, okay?
1. Prioritizes Risks
If multiple dangers become an issue, having an overview of all possible risks can assist you in comparing them with each other. Making this a top concern will aid your project team in staying on course if there are any issues with the project.
2. Minimizes Impact
The consequences of a danger that is not planned for beforehand can seem to be more drastic and damaging than one that is noted and taken care of right away. Being conscious of the potential consequences can help to reduce or get rid of the effect of a venture hazard before it takes place. Prepare for the worst and hope for the best.
3. Offers Administrative Aid
After you have determined the risks and evaluated them according to their importance, you can set up action plans, make financial and administrative choices that will offer the best plan for your business.
4. Effective Planning
When everyone in your business is in agreement and has a complete understanding of the tasks at hand, the procedures will become more efficient, cost-effective, and risk-free as a matter of course. Decreasing the chance of errors is possible when data is made easier to comprehend and is accessible for everyone involved in the process of decision-making between departments.
5. Quick Visual Input
A risk assessment matrix serves as a visual aid that provides an overview of the potential risks a company could encounter in its everyday activities. This tool has a great advantage in that it is a succinct document that can be consulted by those in charge and is very simple to comprehend.
6. Inexpensive Process
Creating a risk assessment matrix may take some time, but it is a speedy and economical method in comparison to other forms of risk analysis. Management can gather information from within and examine it to devise a dependable framework tailored to the company.
How to Create a Risk Assessment Matrix in Simple Steps?
The task of assessing risk may seem intimidating. So here are a few simple steps that you can follow:
Step 1. Identify Possible Risks
The initial step is to gather a comprehensive understanding of all the existing dangers.
Start the process by conducting a brainstorming meeting with your team to list out any potential risks that come to mind. This will compile a set of ideas that will make up the foundation of the risk analysis framework.
Consider the usual types of risks and contemplate if any of them could be encountered in your project, one by one. This will assist you in recognizing and gaining an intense comprehension of the possibilities of hazard included.
Here’s an example of how you can categorize your risks :
- Strategic: Coping with competition
- Operational: Potential scarcity of resources
- Financial: Capital cost and expenditure
- Market: Creating a social media presence
- Technology: Managing and Maintaining data security
Repeat this process until you have gone through all possible sets of potential threats.
Step 2. Understand the Risk Criteria
Once you have identified the risks associated with your business, it is time to evaluate them. Before you take any action, you must create a regular set of guidelines to aid you in examining it. This is a significant move since these variables will direct the remainder of the procedure.
Two key factors that are often used in a standard risk assessment matrix include:
- Likelihood – the level of possibility of the risk occurring
- Consequence – the level of impact the risk can create
In addition to these two elements, you may want to take into account other aspects, such as susceptibility and rate of onset, though this is not necessary.
Step 3. Evaluate and Classify the Risks
Once the potential dangers have been pinpointed and the standards have been set, the following move is to assess or assign a level to the risks. This step involves a numerical analysis of the most serious threats.
You can separate the potential risks into three tiers, with “High”, “Medium”, and “Low” as the categories, or rate them on a scale of 1 to 5.
Organize your risks according to the criterion and concentrate on the most important ones. This includes:
- High probability and high impact : These risks are notorious and must be the number one priority of your mitigation plan.
- High probability and low impact : These are standard risks and they also require mitigation plans due to their high frequency, however, its impact is low and therefore manageable.
- Low probability and high impact : The chances of these risks occurring are close to zero. But if they do occur, they will have a massive impact on your operations. To be safe, there must be a mitigation plan in place, however, prevention is better than cure.
- Low probability and low impact : These risks cause very minimal damage and are unlikely to happen. Therefore are considered insignificant and are not the focus of mitigation plans.
Step 4. Plan Mitigation of the Risks
Now that you understand the risks, what actions should you take?
You must decide how you want to tackle them. Experts are consulted to determine the potential repercussions, collect pertinent information, and analyze the data to create risk assessment and prioritizing techniques.
Different methods can be used to address potential hazards. Here are a few ways to help mitigate risks successfully:
- Acceptance : This risk is manageable, and the organization feels capable of overcoming it.
- Reduction : When there is a significant danger, the firm would take up efforts to mitigate it as soon as possible.
- Prevention: Doing everything possible to ensure that the risk cannot take place or to not encounter the risk at all. This is advisable for the high impact risks.
- Sharing : Multiple teams or organizations in the firm may be responsible for handling this risk in case it arises.
- Correction: Trying to find the risks before too much damage has been done and signaling early to minimize the impact.
- Warning: Focusing on detecting the risk as early as possible.
Considering that hazards are unavoidable, having a risk assessment matrix available will be of great assistance in the management of projects for all those involved.
Distribute a risk assessment matrix to your technical staff so that they can anticipate potential issues before they come up and assign risk management responsibilities in accordance with the plan that has been agreed upon, implemented, and revealed.
A risk assessment matrix can be employed externally to anticipate potential problems and plan to circumvent them while managing jobs for customers or associates, thus providing peace of mind to your customers or partners that the project will be finished on time.