by Engaging in Risk Management activities requires a Qualitative risk analysis, which aims at prioritizing risks according to (at least) their probability of occurrence and the impact that those risks might have on project objectives. This prioritization is important in order to know which risks are really important; to understand which are the risks that are worth allocating (usually very limited) resources to the risk management effort. The prioritization effort obviously starts with the definition/agreement of a reference scale for probability and impact (Definition of Risk Probability and Impact), as shown in Table 1.
One of the main issues that arise in qualitative risk analysis is related to prioritizing risks that have an equal (or very close) risk score. For simplicity, let’s take the example in Table 2 of two risks that have the same score; the score comes from a ranking of very low probability – very high impact (for risk R1) and very high probability – very low impact (for risk R2). Both risks have the same score (score 5), although their materialization would influence the project differently. Good practice teaches us that the first risk, the one with the highest impact, has priority in terms of treatment, at least in relation to the second risk, which although it has a high probability, still has a very low impact on the project objectives.
This problem does not stop there. Looking further in Table 2, we see that there are risks with higher scores than the two risks discussed (R1 and R2). For example, risk R7, with very high probability and low impact, has the highest score and (theoretically) should be treated before other risks with much higher impact. Furthermore, if an automatic formula is created to mark the risks with a score less than or equal to 5 as being on the “watch list”, we are on the verge of overlooking possible serious threats to the project, such as R1.
Usually, this problem is solved by manually reviewing all the risks that we have defined in the Risk Register, to make sure that risks with a major impact are taken into account.
A very simple approach to this problem (in addition to other methods, obviously) is to change the reference scale for the values associated with the impact. Specifically, the proposal is to use Fibonacci series (1,2,3,5,8,…) for the reference scale of impact on targets. Furthermore, the proposal is to use the series starting with the value 3, instead of 1 (see Table 3, with the reconfigured reference scales).
Such a reference scale, used only for impact, would differentiate risks much better, considering their impact. Although the probability remains with the old reference scale, you can see a reordering of the order of importance of the risks, keeping in mind the significance of the impact that the risk might have (see table 4 and compare the Ord columns in tables 2 and 4). We see that all the risks with high and very high impact have higher ranking, therefore being more likely to be noticed and treated than before.
This technique is just one of the alternatives available to the Project Manager and Project Management Team. The underlying idea of this article is the basic principle of tailoring the tools and techniques we use within the project, so that they serve our best interests in managing the project to success. Keep adjusting and updating your tools, so that you work smarter and faster.
