According to many studies, more than 60% of projects are either late or fail to deliver to specifications. Risk is one of the aspects that can impact timeline, budget, scope, and project resources, and there is no way of knowing when it will happen.
Most of the time, you will feel like all the odds are against you. We can't predict the risks, but we can proactively prepare for them. Implementing efficient risk management methods, such as risk matrix, help us avoid potential damage.
This article will give you a couple of tips and tricks, explain how the risk matrix works, and help you turn your results into action.
What Is a Qualitative Risk Analysis Matrix?
The qualitative risk analysis matrix has three functions:
- Prioritizing risks based on probability and impact
- Identifying the main areas of risk exposure
- Improving understanding of project risks
Different types of risk influence projects, and it's not common for project managers to deal with all of them. Usually, the resources we spend to mitigate sources overpower the risk itself.
That's why one of the main goals of quantitative risk analysis is to prioritize risks according to their probability and impact. This helps project managers develop strategies that will tackle the most significant risks.
Also, project managers use this method to have a better understanding of the main risk exposure areas. You can accomplish this by linking risks to their source, which is crucial, especially when prioritizing treatment schedules and risk areas.
Qualitative risk analysis also helps project managers understand the risks, develop better risk treatments, and plan a budget for future projects. In short, this method will identify threats or opportunities, their likelihood of happening, and potential impact, while the Probability/Impact ranking matrix shows results.
Moreover, this analysis will classify risks by effect or source and offer a more generalized approach. We'll include some other benefits below.
User-friendly
Your project team doesn't need special training since they don't use challenging software or tools. The great news is that qualitative risk analysis doesn't have to predict risk occurrence frequency.
This saves a lot of time, especially when your team gets to avoid predicting the exact timing and frequency of each risk. However, they can determine the areas of great risk while staying within scope and budget.
Easy Classification
Quantitative risk analysis prioritizes risks based on their impact and likelihood. This way, organizations can focus on particular risks that fall into categories of the highest likelihood and impact.
Project managers could also put collaborative software into use to manage their work effectively. Tools like ActiveCollab can help you control project teams and resources efficiently when some identified risks occur.
Risk will happen, for better or for worse. While we mostly link risks to negative events, let's not forget about a positive risk in project management, an event that positively affects our project outcome.
Risk Analysis Matrix Example
The risk analysis matrix can be used in many ways. The most common include placing risks on one axis and probabilities on the other. This way, you create a four-quadrant matrix table, each quadrant showing a different level of risk.
The top left quadrant indicates the highest level of risk, featuring the highest severity and probability. Risks located at the bottom of the quadrant indicate low severity and low probability.
To assess the risk, we took the example of a DDoS attack.
Risk: Risk of DDoS attack
Distributed Denial of Service (DDoS) attacks bring significant risk to organizations that depend on their networks and websites as an integral part of their business. What could possibly go wrong?
How much risk is associated with DDoS, and how much risk is reduced using traditional security controls such as firewalls?
We can use a risk matrix to analyze the current state risk present in the current as-is state, with an assumed minimal set of security controls (i.e., a firewall) implemented.
After analyzing the current state's risk, we will look at how much risk is mitigated upon implementing three different Arbor DDoS attack protection solutions, essentially the to-be risk states.
Regarding the template, the risk matrix includes several risk categories, from low to high, while probability ranges from likely to very unlikely. When you intersect both criteria, you will get the risk rating.
Risk Matrix: Benefits & Challenges
You might be wondering why someone would spend time assessing the risks and creating matrices for all your projects. Well, the benefits are hard to neglect.
With the help of the risk matrix, you will classify the risks and understand their level of severity. If multiple risks occur, you will be able to prioritize them against one another.
How does your team benefit from this? Risk prioritization keeps the project team on the right track even if a project goes awry.
Even though it's impossible to fully plan for every risk, understanding and acknowledging that uncertainties could happen offer an opportunity to develop an action plan for unexpected events. You will be able to complete your project if you appropriately plan for risks successfully.
Lastly, the risk matrix reduces the impact risk can cause. The risk's consequences might be more damaging and severe if not thought about in advance than those that have been analyzed and identified on time. Being aware of the risk can eliminate the threat even before it happens.
While the risk matrix is beneficial for a variety of reasons, it might not fix all your project problems. Here are some of the challenges that are worth considering:
Some risk matrix categories might not be able to differentiate risk levels accurately. Most of the time, the likelihood and severity of particular risks are unreliable and highly subjective.
Poorly categorized risks can cause bad decision-making, considering you don't have an accurate picture of potential problems.
The risk matrix doesn't make a difference between a risk that can happen one week from now and a risk that can occur in a year. Also, this method doesn't consider how risks change over time. While some may stay the same, others can change overnight.
Types of Risk Matrices
The most popular types of risk matrices include 3x3, 4x4, and 5x5.
A 3x3 risk matrix includes three levels of probability and three levels of severity, with the following values.
Severity:
- Marginal – you can control the risk while its results are minor and would not damage the system
- Moderate - the risk could cause severe damage and requires immediate corrective action
- Critical – the risk may cause major system loss and demands immediate cessation of all activities
Probability:
- Improbable – unlikely to occur
- Occasional – can occur during standard operations
- Probable - most likely to happen during standard operations
A 4x4 risk matrix includes four levels of probability and four levels of severity, with the following values.
Likelihood:
- Very unlikely – unlikely to occur, but possible
- Not likely – could occur from time to time
- Probable – will occur at a particular time
- Very likely – expected and will occur
Severity:
- Negligible – not serious; the risk will have few consequences if it occurs
- Minor – the risk will be easy to manage
- Moderate – it will take time to mitigate the consequences of the risk
- Catastrophic – can cause irrevocable consequences, and it may be hard to recover from
A 5x5 risk matrix includes five levels of probability and five levels of severity, with the following values.
Likelihood:
- Very unlikely – unlikely to occur, but possible
- Not likely – could occur from time to time
- Possible – can occasionally occur during standard operations
- Probable – will occur at a particular time
- Very likely – expected and will occur
Severity:
- Negligible – not serious; the risk will have few consequences if it occurs
- Minor – the risk will be easy to manage
- Moderate – it will take time to mitigate the consequences of the risk
- Major – severe, resulting in long-term damage
- Catastrophic – can cause irrevocable consequences, and it may be hard to recover from
Risk Management Software and ERM
There are many risk management software and Enterprise risk management software (also known as ERM software).
ERM is a specialized type of risk management software designed to help large-scale enterprises identify potential risks and weigh them against business opportunities. They are also called risk management information systems (RMIS). RMIS is designed to address growing technological threats like DNS and DDoS attacks.
Companies can choose software to improve risk management as the company grows, including ERM, third-party, IT, compliance, and incident management solutions that work together in a single interface.
Risk management software and ERM can be integrated with your project management tool. This way, you can easily monitor and assess your project risks.
For example, LogicGate is a cloud-based SaaS solution that helps organizations automate their risk and compliance programs. It can be easily integrated with ActiveCollab using Zapier with no code.
