Risk Matrix

Quick reference

• 00:04 Hello, I'm Ray Sheen.
• 00:06 And I'd like to talk about analyzing risk in order to prioritize them.
• 00:10 We call this qualitative risk analysis and
• 00:13 our primary tool to do this is the risk matrix.
• 00:16 Most organizations are operating with limited time and resources.
• 00:22 So it's important to minimize the threat risks and maximize opportunity risks.
• 00:26 However, since they are constraints, you can't minimize all threats and
• 00:31 take advantage of all opportunities.
• 00:33 And it's probably no surprise that some risks will have a different impact
• 00:37 than others.
• 00:38 Therefore, you need to prioritize which risks to address.
• 00:41 This prioritization is known as Qualitative risk analysis.
• 00:45 In addition, as industry and organizational conditions change, and
• 00:49 as elements of the project plan need to change,
• 00:51 the risk priority often changes throughout the life of the project.
• 00:55 As a project manager, you decide which risks are critical threats, and
• 00:59 take action to eliminate or prepare for them.
• 01:01 And you identify which opportunities could have the biggest impact on the project and
• 01:05 take advantage of those.
• 01:07 Qualitative risk analysis provides focus on those critical risks.
• 01:12 Qualitative risk analysis normally results in placing risks into
• 01:15 one of three categories that often use to stop like colors to segregate them.
• 01:20 There is the red light.
• 01:21 The red risks are large, critical risks.
• 01:24 They are likely to cost significant disruption and problems or
• 01:27 significant improvement to the project goals.
• 01:30 If it is a negative risk, the risk could doom the project to failure.
• 01:33 These risks are likely to happen and
• 01:35 they we'll prevent the project from achieving all the goals and objectives.
• 01:39 Next are the yellow risks.
• 01:41 These are the cautionary risks.
• 01:43 They are manageable but they require a lot of effort to manage them.
• 01:46 They must be closely monitored, possibly micromanaged.
• 01:50 They do cause some disruption but not to the level of project failure.
• 01:55 Finally, there are the green risks.
• 01:57 These risks are not a significant issue on the project.
• 02:00 Many times a green risks are red or yellow risks that have been mitigated.
• 02:03 They're still an issue and irritant, but because of the mitigation action,
• 02:07 they will not have an significant impact any longer.
• 02:11 The primary technique we use for determining the red, yellow,
• 02:14 green status is the risk matrix.
• 02:17 This is considered a qualitative technique because it is not meant to involve
• 02:21 in-depth testing or analysis.
• 02:23 The tools of matrix and
• 02:25 each risk will be placed in the matrix at the appropriate location.
• 02:29 One side of the matrix is probability.
• 02:31 I assess the probability of a risk by considering how
• 02:35 frequently it has occurred on the last five similar projects.
• 02:38 If it's happened on all or almost all of them, the probability is high.
• 02:42 If it didn't happen on any of them, then the probability is low.
• 02:46 When I look at impact side, I consider the existing project plan or
• 02:50 the intended approach if the plan is not yet finished.
• 02:53 And I consider the project goal or objective.
• 02:56 I ask the question, what if this happens on this project?
• 02:59 Does that impact the goals or objectives of this project, and if so, by how much?
• 03:05 A matrix can be created to analyze the opportunities or threats.
• 03:09 Normally, there is a matrix created for
• 03:11 each, although I have seen a matrix that tried to combined the two.
• 03:15 Personally, I thought it was clunky, and I recommend using two separate matrices.
• 03:19 Finally, the size of the matrix can vary.
• 03:21 I have seen 3 x 3s, 4 x 4s, and 5 x 5s.
• 03:25 Any of these will work, use the one your organization has adopted, or
• 03:29 the one that suits your personal preference.
• 03:31 The last point I wanna make about a qualitative analysis of the risk matrix,
• 03:35 is that it is meant to be a fast and easy approach to filtering risks.
• 03:40 The risk that end up in our red zone we'll normally do a more in-depth analysis with,
• 03:45 but this step should be fast.
• 03:46 That leads us to a comment on the rating scales that are used on the risk matrix.
• 03:52 The most common is to use some type of quantitative scale
• 03:55 even though a risk matrix is a qualitative technique.
• 03:59 This is one that I pulled from one of my clients who uses a 5 x 5 matrix.
• 04:04 The impact scale is usually in money, but
• 04:06 I have occasionally seen it quantified in units of time.
• 04:09 I personally don't like to use the quantitative scale.
• 04:12 I get people arguing whether the impact is
• 04:16 going to be $9,999 or $10,001, if they try to force a risk into a particular color.
• 04:22 If you're using a quantitative scale, try to relate your risk to something that
• 04:26 actually happened on another project in order to quantify your impact.
• 04:30 I prefer to use a qualitative scale such as this analysis,
• 04:34 which is for 3 x 3 matrix.
• 04:36 In this case,
• 04:37 we rely on the subject matter experts to help us assign the correct rating.
• 04:41 One more point about the value of a risk matrix.
• 04:43 I've had projects where stakeholders were upset with the team and
• 04:47 felt that they were being too negative when they presented their risk.
• 04:50 By showing the risk matrix,
• 04:52 the team is able to explain why they think a particular risk is red or yellow.
• 04:57 The matrix forces the stakeholders to consider the probability and
• 05:00 the impact and not just emotion when prioritizing risks.
• 05:04 Risk prioritization is an important role of project management.
• 05:09 The project time and resources are constrained, risks must be
• 05:13 prioritized to make effective use of the scarce project resources.

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