Risk Analysis Methods (PDF)

RISK MANAGEMENT RISK ANALYSIS Prepared by: Dwight D. Dacquel, MBA LEARNING OBJECTIVES: At the end of this lesson, you are expected to: Differentiate between qualitative and quantitative risk assessment. Apply risk assessment tools and techniques QUESTION TO PONDER Imagine yo...

RISK MANAGEMENT RISK ANALYSIS Prepared by: Dwight D. Dacquel, MBA LEARNING OBJECTIVES: At the end of this lesson, you are expected to: Differentiate between qualitative and quantitative risk assessment. Apply risk assessment tools and techniques QUESTION TO PONDER Imagine you're planning your group project for this class (Risk Management Plan). What are some things that could go wrong that might prevent your group from achieving its goals? DEFINITION: Risk Analysis Is the process of evaluating identified risks to determine their probability of occurrence and potential impact on project objectives.  PURPOSE  Prioritization: Focus on the most significant risks.  Decision-Making: Inform choices about risk responses.  Resource Allocation: Efficiently allocate resources.  Communication: Facilitate clear communication with stakeholders.  QUALITATIVE RISK ANALYSIS Describing risk A process of prioritizing risks for further analysis or action by assessing their probability of occurrence and impact using descriptive scales (e.g., High, Medium, Low) Focus: Subjective assessment based on expert judgment, experience, and available information.  PROBABILITY AND IMPACT Probability: The likelihood that a risk event will occur. Ex. Rare, Unlikely, Possible, Likely, Almost Certain Impact: The effect a risk event will have on project objectives if it occurs. Ex. Negligible, Minor, Moderate, Major, Critical, Catastrophic  PROBABILITY / IMPACT MATRIX  A matrix that combines the probability and impact of risks to assign a risk score or category. PROBABILITY / IMPACT MATRIX PROBABILITY / IMPACT MATRIX  QUALITATIVE RISK ANALYSIS Risk Data Quality Assessment - Evaluating the reliability and accuracy of the data used for risk analysis.  QUALITATIVE RISK ANALYSIS Why Risk Data Quality Assessment is important? Poor quality risk can lead to: Incorrect risk prioritization Ineffective risk responses Wasted resources Unrealistic risk assessments  QUALITATIVE RISK ANALYSIS Factors of Risk Data Quality Assessment Data Accuracy Data Reliability Data Completeness Data Timeliness  QUALITATIVE RISK ANALYSIS Other Qualitative Techniques Judgment Brainstorming   QUALITATIVE RISK ANALYSIS Judgment - Relying on the knowledge and experience of experts to assess risks  Advantages:  Valuable when historical data is limited or unavailable.  Provides insights into complex or nuanced risks.  Can identify potential risks that might be overlooked by other methods.  Disadvantages:  Subjectivity and potential biases of the experts.  Difficulty in quantifying the level of expertise.   QUALITATIVE RISK ANALYSIS Brainstorming - A group technique for generating a list of potential risks. Advantages:  Generates a wide range of ideas in a short amount of time.  Encourages participation and buy-in from stakeholders.  Can uncover risks that might not be identified through individual analysis. Disadvantages:  Can be dominated by certain individuals.  May not be suitable for analyzing complex or technical risks.  Requires skilled facilitation to be effective.  QUALITATIVE RISK ANALYSIS SWOT Analysis - Identifying risks from weaknesses and threats in a SWOT analysis. Weaknesses: Internal factors that could increase the likelihood or impact of negative events (risks). Threats: External factors that could negatively affect the organization or project. These are direct sources of risk.  QUANTITATIVE RISK ANALYSIS Measuring risk A process of numerically analyzing the probability and impact of risks to determine their overall effect on project objectives. Focus: Objective measurement using numerical data and statistical techniques.  QUANTITATIVE RISK ANALYSIS Expected Monetary Value (EMV) - The average outcome of a risk event, calculated by multiplying the probability of the event by its monetary value. Formula: EMV = Probability * Impact (in monetary terms) Example: If there's a 20% chance of a $100,000 cost overrun, the EMV is 0.20 * $100,000 = $20,000.  QUANTITATIVE RISK ANALYSIS Expected Monetary Value (EMV)  QUANTITATIVE RISK ANALYSIS Probability Distributions – a mathematical functions that describe the likelihood of different outcomes. To represent uncertainty more realistically than single-point estimates. Examples: Triangular, Normal, Uniform, & Beta Distributions QUANTITATIVE RISK ANALYSIS  QUANTITATIVE RISK ANALYSIS Sensitivity Analysis – A technique used to determine which risks have the greatest potential impact on the project. Monte Carlo Simulation - A technique that uses computer-generated random numbers to simulate the combined effect of multiple risks on project outcomes Decision Tree Analysis - A graphical representation of decision options and their  INPUTS & OUTPUTS OF RISK ANALYSIS Inputs to Risk Analysis Risk Register: The primary input, containing identified risks and descriptions. Project Scope Statement: Defines the project boundaries for risk analysis. Project Management Plan: Provides context and information. Organizational Process Assets: Policies, procedures, and historical data. RISK REGISTER SAMPLE  INPUTS & OUTPUTS OF RISK ANALYSIS Outputs of Risk Analysis Prioritized Risk List: Risks ranked by their overall risk score or category. Risk Report: A document summarizing the results of risk analysis, including risk descriptions, probabilities, impacts, and response recommendations. RISK REPORT SAMPLE THANK YOU!