There are many project risks that can affect your project and, as a project manager, you’re responsible for the risk analysis process. Risk analysis, or risk assessment is essential because it allows project managers to classify project risks and determine which of them should be tracked closely.
What Is Project Risk Analysis?
Risk analysis consists of using tools and techniques to determine the likelihood and impact of project risks that have been previously identified. Therefore, risk analysis helps project managers decipher the uncertainty of potential risks and how they would impact the project in terms of schedule, quality and costs if, in fact, they were to show up. Risk analysis isn’t exclusive to project management and it’s used in other disciplines such as business administration, construction or manufacturing.
No matter what industry you’re in, you’ll always have projects and so, you should use project management software for risk analysis. ProjectManager, for instance, has risk management tools that let you track risks in real time. Keep track of individual risk events and mark their impact, likelihood and overall risk level with a risk matrix. Then assign that risk to a team member and use project dashboards to monitor. Get started with ProjectManager today for free.
How to Analyze Project Risks
At a basic level, there are three things you should consider when assessing project risks: risk probability, risk impact and risk exposure. These three things can be estimated through qualitative and quantitative risk analysis.
Risk Probability
All risks have a certain probability of occurrence, which means they might or might not happen. Estimating risk probability isn’t an exact science, but there are several techniques you can use, such as examining data from past projects. By analyzing similar projects from the past, you can better determine whether there’s a high or low chance of project risk.
Risk Impact
Consider the type of risk and its potential impact on the project. Some risks will bring financial stress, while others might involve resource management issues or delays to the project schedule. To make things simple, you can simply assign levels of impact for your project risks, such as low, medium or high depending on how critical they are.
Risk Exposure
Risk exposure combines risk probability and risk impact in one formula that’s used by businesses to determine whether they’re ready to assume a potential risk or not. This technique can only be used when you can measure the potential losses associated with risk. The risk exposure formula is:
Risk Exposure = Risk impact * Risk probability
So, if a given risk had an impact of $1 million and the probability of that risk was 50%, your risk exposure would equal $500,000.
What Is Qualitative Risk Analysis?
Qualitative risk analysis refers to the risk analysis tools and techniques that rely on expert subject matter opinions, subjective and non-statistical means to assess the likelihood and impact of project risks. A risk matrix is a typical example of a qualitative risk analysis tool.
What Is Quantitative Risk Analysis?
By contrast, quantitative risk analysis is a statistical analysis of project risks. While it takes longer than qualitative analysis, quantitative risk analysis tends to be more accurate as it relies on data. Some examples of quantitative risk analysis tools are linear regression models or the Monte Carlo simulation, both statistical techniques that simulate scenarios and their different outcomes so that managers can better understand how risk can affect their business or project. Let’s take a closer look at some risk analysis tools and techniques you can use.
8 Project Risk Analysis Tools & Techniques
There are several risk analysis methods and tools that help managers through the analysis and decision-making process. Some of these involve the use of risk analysis tools such as project management charts and documents. Let’s dive into these risk analysis methods and how they can help you.
1. Team Brainstorming Sessions
Estimating risk probability and impact is a huge part of risk analysis. As stated, this can be done subjectively, which might lead to error, especially if you do it by yourself as the project manager. To avoid this, you can involve all the team members you consider relevant to get their input on risk likelihood and potential negative consequences.
2. Delphi Technique
The Delphi technique involves a panel of experts on topics that are critical to your project risk. It could be financial experts, lawyers, project management consultants or any other type of professional. This risk analysis method consists of promoting a debate among these experts who ultimately need to reach a consensus on a particular topic, such as estimating the business impact of a risk.
3. SWOT Analysis
SWOT analysis allows managers to understand the current situation of their business or project by looking at its strengths, weaknesses, opportunities and threats. As a risk analysis tool, it lets you note which of your weaknesses might be exploited by others and which external threats might affect your projects, such as economic conditions or the threat of new competitors.
4. Risk Analysis Matrix
The risk analysis matrix assesses the likelihood and the severity of risks, classifying them by order of importance. It’s main purpose is to help managers prioritize risks and create a risk management plan that has the right resources and strategies to properly mitigate risks. Risk likelihood is measured on a relative scale, not a statistical one, which makes it a qualitative risk analysis tool. This tool is also called the probability/consequence matrix by some project managers.
5. Risk Register
A risk register is a crucial project management tool to document project risks. It’s a document that lists all the potential risks that could occur during the project execution phase, as well as critical information about them. It’s meant to be used as input for the risk management plan, which describes who’s responsible for those risks, the risk mitigation strategies and the resources needed. Creating a risk register usually involves several reliable information sources such as the project team, subject matter experts and historical data.
6. Decision Tree Analysis
A decision tree analysis consists of mapping out the potential outcomes that might occur after a decision is made. This is a great method to analyze risks in new projects. Create decision trees as you go through your project planning process so you can identify potential risks and their probability and impact along the way.
7. Bow Tie Analysis
This qualitative risk analysis method is used to identify causes and consequences for all potential project risks. The project management team must first identify risks that might affect the project and then think about causes, consequences and more importantly, a risk mitigation strategy for them. It’s a versatile method that can be used in any industry.
8. SWIFT Analysis
SWIFT stands for Structured What If Technique. It’s a risk analysis method that focuses on identifying potential risks associated with changes made to a project plan. As its name suggests, team members have to come up with any “what if” questions they can to find out all the potential risks that could arise.
What Is Risk Analysis?
Risk analysis is the process that determines how likely it is that risk will arise in a project. It studies the uncertainty of potential risks and how they would impact the project in terms of schedule, quality and costs if, in fact, they were to show up. Two ways to analyze risk are quantitative and qualitative. But it’s important to know that risk analysis is not an exact science, so it’s important to track risks throughout the project life cycle.
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Types of Risk Analysis
There are two main types of risk analysis: qualitative and quantitative risk analysis. Let’s learn about these two approaches.
Qualitative Risk Analysis
The qualitative risk analysis is a risk assessment done by experts on the project teams who use data from past projects and their expertise to estimate the impact and probability value for each risk on a scale or a risk matrix.
The scale used is commonly ranked from zero to one. That is, if the likelihood of the risk happening in your project is .5, then there is a 50 percent chance it’ll occur. There is also an impact scale, which is measured from one to fine, with five being the most impact on the project. The risk will then be categorized as either source- or effect-based.
Once risks are identified and analyzed, a project team member is designated as a risk owner for each risk. They’re responsible for planning a risk response and implementing it.
Qualitative risk analysis is the base for quantitative risk analysis and reduces project uncertainty while focusing on high-impact risks. This allows you to assign a risk owner and plan out an appropriate risk response. Get started with qualitative risk analysis with our free risk assessment template.
Quantitative Risk Analysis
By contrast, quantitative risk analysis is a statistical analysis of the effect of those identified risks on the overall project. This helps project managers and team leaders to make decisions with reduced uncertainty and supports the process of controlling risks.
Quantitative risk analysis counts the possible outcomes for the project and figures out the probability of still meeting project objectives. This helps with decision-making, especially when there is uncertainty during the project planning phase. It helps project managers create cost, schedule or scope targets that are realistic.
The Monte Carlo simulation is an example of a quantitative risk analysis tool. It’s a probability technique that uses a computerized method to estimate the likelihood of a risk. It’s used as input for project management decision-making.
Risk Analysis Methods
There are several risk analysis methods that are meant to help managers through the analysis and decision-making process. Some of these involve the use of risk analysis tools such as charts and documents. Let’s dive into these risk analysis methods and how they can help you.
Bow Tie Analysis
This qualitative risk analysis method is used to identify causes and consequences for all potential project risks. The project management team must first identify risks that might affect the project and then think about causes, consequences and more importantly, a risk mitigation strategy for them. It’s a very versatile method that can be used in any industry.
Risk Analysis Matrix
The risk analysis matrix assesses the likelihood and the severity of risks, classifying them by order of importance. It’s main purpose is to help managers prioritize risks and create a risk management plan that has the right resources and strategies to properly mitigate risks. Risk likelihood is measured on a relative scale, not a statistical one, which makes it a qualitative risk analysis tool.
Related: Free Risk Analysis Matrix Template
Risk Register
A risk register is a crucial project management tool to document project risks. It’s a document that lists all the potential risks that could occur during the project execution phase, as well as critical information about them.
It’s meant to be used as input for the risk management plan, which describes who’s responsible for those risks, the risk mitigation strategies and the resources needed. Creating a risk register usually involves several, reliable information sources such as the project team, subject matter experts and historical data.
SWIFT Analysis
SWIFT stands for Structured What If Technique. It’s a risk analysis method that focuses on identifying potential risks associated with changes made to a project plan. As its name suggests, team members have to come up with any “what if” questions they can to find out all the potential risks that could arise.
Benefits of Risk Analysis
There are many benefits to using risk analysis in your projects. Here are some of the most common ones.
- Avoid potential litigation
- Address regulatory issues
- Comply with new legislation
- Reduce exposure
- Minimize impact
Risk analysis is an important input for decision-making during all the stages of the project life cycle. Project managers who have some experience with risk management are a great resource. We culled some advice from them, such as:
- There’s no lack of information on risk
- Much of that information is complex
- Most industries have best practices
- Many companies have risk management framework
Project Risk Analysis Templates
There are several quantitative and qualitative risk analysis methods. There are several tools that can be used for different purposes. To help, we’ve prepared some free risk analysis templates to help you through the risk analysis process.
Risk Register Template
This risk register template has everything you need to keep track of the potential risks that might affect your project as well as their probability, impact, status and more.
Risk Analysis Matrix Template
This risk matrix template lets you visualize your project risks in one color-coded graph to classify them by likelihood and severity. This allows you to better understand the most critical risks for your project.
Risk Analysis In Project Management
Risk analysis is a fundamental step in the project risk management process, which consists of four main stages.
- Risk identification: First, identify your potential project risks and list them using a risk register.
- Risk analysis: Now, estimate the impact, likelihood and exposure for each risk and assign a priority level based on this information. The higher the priority level, the more resources are allocated to mitigate the risk.
- Create a risk management plan: Create risk mitigation strategies, or contingency plans to alleviate the impact of each project risk you’ve previously analyzed. These details are usually included in a risk management plan.
- Track risks until project completion: Implementing your risk management plan is as important as creating one. Set up project controls to keep track of risk at all times.
Risk Analysis Video
If we’ve caught your attention when it comes to discussing risk analysis on a project, don’t worry. Watch project management guru Jennifer Bridges, PMP, as she helps visualize how to analyze risks on your project.
Here’s a shot of the whiteboard for your reference!
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How ProjectManager Helps Your Risk Analysis
ProjectManager is online work and project management software that allows you to manage risks alongside your project. Activate the Risk View to create a running list of all of your project risks. Then add descriptions, mark likelihood, impact and level with an embedded risk matrix. Work towards resolutions with your team and add comments along the way.
Project Tracking You Can Trust
It’s hard to recognize risk without a proper project tracking system in place. Across all of ProjectManager’s views, you can monitor progress and communicate with your team as you work together. But, to take it even further, leverage our built-in dashboards and project reports to stay on top of all aspects of your projects, so you’re ready to identify risks as soon as they appear.
Analyzing and resolving risk is a team effort and our software is collaborative to the core. Teams can comment, share files and get updates from email notifications and in-app alerts. There’s one source of truth and you’re always getting real-time data so everyone is on the same page. Get started with ProjectManager today for free.
