Project Risk Analysis

Project Risk Analysis

SWOT Analysis

SWOT Analysis is sometimes called situational assessment or situational analysis. It is a common analysis used to define the organization’s standing and proactively plan and analyze the company’s performance, competition, and risks. It stands for strengths, weaknesses, opportunities, and threats. SWOT analysis includes assessing all effective factors associated with the desired project. See Figure 7.4 for an example.

Qualitative Risk Analysis:

Based on past projects and the opinions of your subject matter experts, it is important to perform a qualitative risk analysis to rate the risks so that you know which risks need more of your attention.

Qualitative forecasting helps executives make company decisions, such as learning about a company’s product or service that should receive more attention in marketing, for example. Rather than limiting the analysis to numerical data, it also looks at other sources of information.

To rate risks, we first need to determine their probabilities and impacts. What is the probability that the risk will occur? If it does occur, what will its impact be?

The risk management process is comprised of four stages. First, we need to identify project risk potential. Secondly, we need to analyze all types of risk. Thirdly, it includes the selection of suitable responses, and lastly, risk monitoring.

The approaches for risk analysis are categorized into two sections:

• Qualitative
  
• Quantitative

Qualitative risk analysis is a type of risk analysis used to assess risk associated with an individual project, the chance of occurrence, and its impact on the project. Using information from similar projects and the opinions of your subject matter experts, perform a qualitative risk analysis to rate the risks so that you know which risks need more of your attention.

Conducting a qualitative risk analysis prioritizes the identified project risks using a pre-defined rating scale. Risks are then scored based on their probability of occurring and the impact the risk will have on the project if they were to happen.

Its impact is categorized as very low, low, moderate, high, and very high. The objective of qualitative risk analysis is to assist the project manager in prioritizing the risks after evaluating the probability and impact of risks, which provides the platform for a project manager to focus on risk responses and strategies. If the probability is almost inevitable, then you want to perform what is known as quantitative risk analysis, where one looks at the probability risk rate.

The Delphi Method

The Delphi method is a formal, in-depth systematic qualitative methodology. It generally involves the following steps:

Step 1. A problem is defined

Step 2. A panel of subject matter experts is assembled

Step 3. Challenges are identified, and probing questions/questionnaire is created and distributed to the experts

Step 4. Facilitator collects the expert’s anonymous responses

Step 5. Facilitator compiles the expert’s anonymous responses

Step 6. Facilitator using the latest responses from the experts creates and distributes a new set of questions for the experts

Step 7. Repeat steps 4 through 7 until there is a consensus

Step 8. Participants commit to the group decision

The output of the qualitative analysis process is project document updates, which include the following documents:

• Assumption Log
  
• Issue log
  
• Risk register
  
• Risk report

Other qualitative methods are:

• Surveys/Questionnaires
  
• Executive Opinions
  
• Internal Opinions

Quantitative Risk Analysis:

A quantitative risk analysis quantifies the possible outcomes. It assesses the probability of achieving specific project objectives, provides a measurable approach for decision-making, and allows you to create a realistic schedule, budget, and scope.

As an example:

• A probability rate of High = 3/100 percent is selected if the risk is very likely to occur.
  
• It would be categorized as Medium = 2/66 percent if likely to occur.
  
• If unlikely, its rating would be identified as Low = 1/33 percent.

You want to do the same for impact. If the risk were disastrous, we would assign it a rating of three. If the effect is moderate, assign a two rating and one rating for minor impact. You or your organization can determine your range of ratings. The risk with the highest ratings should be listed as the highest priority.

Table 7.2 illustrates a simple Probability and Impact Matrix to keep things simple. As you can see in this example, the equipment delay would cause the most significant impact. We would want to manage and monitor the equipment orders closely.

Risk Analysis & Modeling Techniques

• Monte Carlo or What-if analysis – A simulation that provides a more realistic cost and time estimate than a non-probabilistic approach.
  
• Expected Monetary Value (EMV) – relies on specific numbers (probability) and quantities (impact) to perform the calculations.

EMV= probability by the impact.

• Decision Tree Analysis – Used for decision making of uncertain future risks/events

Prioritize your risks; verify and validate any assumptions made during the identification process before appointing them to risk owners for management. But remember that you, the project manager, are ultimately responsible for the project’s success.