Qualitative Risk Analysis

MGMT 4019
Intro to PM & Risk Management
Class 9
 Learning Objectives

1. Recall the definition of qualitative risk analysis

2. Recall the 4 steps for performing a qualitative risk analysis

3. Describe how to determine risk probability and risk impact for

identified project risks

4. Describe how to calculate an overall risk priority score for each

identified project risk

5. Apply the concepts learned in this class to assign a risk probability

score, risk priority score and overall risk priority scores for an
identified risk in a sample project using a risk probability, risk
impact and risk priority matrix
 Review

▪ What is the first step in planning risk once the Risk

Management Plan has been created
 Qualitative Risk Analysis: Definition

▪ Qualitative Risk Analysis: The process of prioritizing individual

project risks for further analysis or action by assessing their
probability of occurrence and impact as well as other
characteristics.
PMBOK, 6th Edition
 Risk Can Impact All Project Constraints

▪ Risk can impact any, or all, of the three project constraints:

– The project’s cost
– The project’s time (schedule)
– The project’s scope/quality
▪ Prioritizing risks helps the project manager to (1) understand how
various risks impact the project, and (2) focus on high-priority risks
 The Process for Prioritizing Risks

▪ The priority associated with any risk is the combination of the probability of
the risk occurring and the impact on the project should the risk occur
▪ A score is assigned to the probability and impact associated with each risk
(Low=1, Moderate=2, High=3)
▪ The result of multiplying these scores determines the Risk Priority Score
(higher values = more risk)
▪ Note: Although risks can be positive (opportunities) or negative (threats),
project managers spend most of their “risk management” time managing
negative risks.
 4 Steps for Prioritizing Risk

Prioritizing project risks is a 4 step process:

1. Identify the inherent* risks that could impact the project (you may
want to look at risks that impacted past projects for examples)
2. Estimate the probability of the risk occurring (High=3, Moderate=2,
Low=1)
3. Determine the impact on the project should the risk occur (High=3,
Moderate=2, Low=1)
4. Multiple the Probability score X the Impact score to calculate a Risk
Priority Score
* an ‘inherent’ risk is a risk that has been identified for which a risk response has
not been implemented
 Apply The 4 Step Process

Let’s work though an example to apply the 4 steps

involved in prioritizing a project risk…
 Apply Step 1 of the 4 Step Process

Step 1: Identify the inherent negative risks that could

impact the project
You and some friends are planning a driving trip to
Florida during spring break. One of the risks you have
identified is the possibility of a snow storm while on
route.
 Applying the 4 Step Process

Step 2(a): Estimate the probability of the risk occurring

You have researched past weather data and estimate that
there is a 25% probability of a snow storm occurring in mid-
March on your driving route.
 Applying the 4 Step Process

Step 2(b): Document the risk in the Risk Probability Matrix

You have researched past weather for this time of year an have estimated the
probability of a snowstorm occurring on your trip at 25% (i.e. less than 30%) it falls
within the Low category and is assigned a value of “1” (Low=1)

Risk Probability Matrix

Risk Low = 1 Moderate = 2 High = 3
Probability < 30% 30 – 60% 60 – 90%
Chances for a snow
storm during spring
Snow storm break in Eastern
Canada are 25%

Important: Unless you have justification and/or a source for quoting a hard number (e.g.
25%), it is sufficient to simply provide a comment in the low, medium or high columns to
provide an indication of the risk probability range without providing a % probability.
DON’T GUESS AT A % PROBABILITY
 Applying the 4 Step Process

IMPORTANT NOTE:
If a risk has over 90% probability of occurring, it ceases to be a risk and is
treated as an assumption which needs to be identified in the Project Charter
and Project Plan.
Note: The 90% threshold value whereby a risk becomes an assumption may
change depending on nature of industry/project (e.g. complex projects or
those with lower overall risk tolerance may treat any risk with, for example, an
80%+ probability as an assumption)

Probability Low = 1 Moderate = 2 High = 3

Percentage < 30% 30 – 60% 60 – 90%
 Risk Identification Begins in the Project Initiation Phase

▪ Risk: a predictable or non-predictable event that may or may not occur that has
the potential to impact any of project scope, quality, costs or schedule.
– Example: Your lender may not provide all of the funds you require to complete the project
▪ Assumption: Something that you believe to be true; a risk that has 90-100%
chance of occurring
– Example: Your lender has indicated that they will not provide all of the funds you require
to complete the project
▪ Constraint: Something that imposes a limit or restriction on your ability to
implement one or more project deliverables
– Example: Your lender will only provide 50% of the funds you require to complete the
project
 Applying the 4 Step Process

Step 2(c): Indicate the probability level from step 2(b) in

the Risk Priority Matrix
• The Risk Priority Matrix will be used to document and track
all risks associated with your project
• As you have estimated the probability of a snowstorm
occurring on your trip at 25%, it falls within the Low category
and is assigned a value of “1” (Low=1)

Risk Priority Matrix

Risk priority score

Risk Probability Impact
(P x I)
Snow storm 1
 Applying the 4 Step Process

Step 3(a): Determine the impact of the inherent risk on the project should the risk
occur (i.e. no planned risk response strategy has been implemented)
Example 1:
▪ You are on a road trip and you get a flat tire. Assuming you did not plan for this
happening and have no spare tire the impact on your trip’s triple constraint could be
significant
– Cost = tow truck, cost of tire
– Schedule = time to have the car towed, time waiting for tire to be installed (it may not
be in stock)
– Scope = You may need to cancel a destination on your trip
 Applying the 4 Step Process

Step 3(a): Determine the impact of the inherent risk on the project should the
risk occur (and no planned risk response strategy has been implemented)

Example 2
▪ You have planned an outdoor event without a back up plan in case of rain. If it rains,
the event may need to be cancelled even after it has begun.
– Cost = no change to cost
– Schedule = decrease in schedule assuming the event is not completed
– Scope/Quality = significant decrease in scope and quality – the event is not
completed and people get wet/uncomfortable
 Applying the 4 Step Process

Step 3(a): Determine the impact of the inherent risk on the project should the risk occur (and
no planned risk response strategy has been implemented)
Use the Risk Impact Assessment Matrix to determine how your identified risk impacts the
project’s cost, time, scope and/or quality
Risk Impact Assessment Matrix

Project
Low = 1 Moderate = 2 High = 3
Objective

Cost < 10% cost increase 10 – 30 % cost increase > 30% cost increase

Time < 5% time increase 5 – 15% time increase > 15% time increase

Scope Minimal scope change Moderate scope change Significant scope change

Quality degradation barely Quality degradation makes the

Quality Quality degradation is evident
noticeable deliverable unusable
 Applying the 4 Step Process

Step 3(a): Determine the impact on the project should the

risk occur
The next slide demonstrates how the risk impacts
associated with the ‘snow storm’ risk are applied to the Risk
Impact Assessment Matrix…
 Estimating Risk Impact – Snow Storm Example

Risk Impact Assessment Matrix: Snow storm

Project
Low = 1 Moderate = 2 High = 3
Constraint
< 10% cost increase 10 – 30 % cost increase > 30% cost increase
Two additional nights in hotel. The total
estimated cost of the trip is $2000 and the
Cost cost of the two nights in hotel are $300 which
equals a cost increase of 15%

< 5% time increase 5 – 15% time increase > 15% time increase
Time Two extra nights = 20% increase in time over
the original 10 day duration

Minimal scope change Moderate scope change Significant scope change

Scope One location will not be visited

Quality degradation barely noticeable Quality degradation is evident Quality degradation makes the
deliverable unusable
Quality
Not applicable Not applicable Not applicable
 Applying the 4 Step Process

Important! The risk impact value is always the highest value assessed in
the Risk Impact Assessment Matrix
For example, here are the risk impact scores for the snow storm:

Risk Cost Time Scope Quality Risk Impact Score

Snow Storm 2 3 1 N/A 3

Because there is a ‘high’ risk associated with the time constraint (20%
more time needed for the trip if the snow storm occurs) the Risk Impact
Score is 3 (High)
 Applying the 4 Step Process

Step 3(b): Indicate the impact level from Step 3(a) in the Risk Priority
Matrix

Risk Priority Matrix

Risk Priority Score

Risk Probability Impact
(P x I)
Snow storm 1 3
 Risk classification

Risk priority is defined by the combined score of probability and

impact:
– High priority risks have a combined P x I score of 6 or more
– Medium priority risks have a combined P x I score between 3 and 4
– Low priority risks have a combined P x I score of 2 or less
 Applying the 4 Step Process

Step 4: Multiply the probability score times the impact score to

calculate the risk priority score

Risk Priority Matrix

Risk Priority Score

Risk Probability Impact
(P x I)
Snow storm 1 3 3

In the case of the snow storm risk, the probability of the risk occurring
is low, which has a value of 1. The impact of the risk, should it occur,
is high, which has a value of 3. So the overall Risk Priority Score is 3
(Moderate) (1 x 3 = 3)
 In class Exercise – Posted to Brightspace

In this in class assignment you will define a second risk associated with your car
trip to Florida in February. You can access an Excel document in the assignment
that contains three tabs: (1) Risk Probability template; Risk Impact template and
(3) Risk Priority template.

• Determine a second risk associated with the ‘drive to Florida’ and add
information related to your risk in the Risk Probability template; Risk Impact
template and Risk Priority templates. The snow storm example has been included
to provide an example of how to enter this information into the templates
 In-class Exercise

Step 1:
Identify one additional inherent risk associated with your road trip to Florida and assign probability
of occurrence (as in the snow storm example)

Risk Probability Matrix

Risk Low = 1 Moderate = 2 High = 3
Probability < 30% 30 – 60% 60 – 90%
Chances for a snow storm
Snow storm on route to during spring break in
Florida Eastern Canada are 25%

Risk #2 <describe>
 In-class Exercise

Step 2:
Enter the probability level (1, 2 or 3) for your additional risk in the Risk Priority Matrix*

Risk Priority Matrix

Risk Priority Score

Risk Probability Impact
(P x I)
Snow storm 1 3 3
Risk #2 <describe> <Enter Value>

* Show your work in the Excel version of the Risk Priority Matrix which is attached to the assignment
in Brightspace
 In-class Exercise

Step 3:
Complete a separate Risk Impact Assessment Matrix for the additional risk you identified for your
Florida Road Trip

Risk Impact Assessment Matrix: <name of risk>

Project Constraint Low = 1 Moderate = 2 High = 3

< 10% cost increase 10 – 30 % cost increase > 30% cost increase
Cost

< 5% time increase 5 – 15% time increase > 15% time increase
Time

Minimal scope change Moderate scope change Significant scope change

Scope

Quality degradation barely Quality degradation is evident Quality degradation makes the
noticeable deliverable unusable
Quality
 In-class Exercise

Step 4:
Enter the Impact level (1, 2 or 3) for your additional risk in the Risk Priority Matrix*

Risk Priority Matrix

Risk Priority Score

Risk Probability Impact
(P x I)
Snow storm 1 3 3
Risk #2 <describe> <Enter Value>

* Show your work in the Excel version of the Risk Priority Matrix included in this week’s
course folder on Brightspace
 In-class Exercise

Step 5:
Calculate the Risk Priority Score (P x I) for each of your identified risks

Risk Priority Matrix

Risk Priority Score

Risk Probability Impact
(P x I)
Snow storm 1 3 3
Risk #2 <describe> Enter value

* Show your work in the Excel version of the Risk Priority Matrix included in this week’s course
folder on Brightspace
 Next Class

Next class: Quantitative Analysis – Decision Tree Test (10%)