Risk Matrix

Quick reference

• 00:04 Hello, I'm Ray Sheen, and
• 00:06 I like to talk about analyzing risks in order to prioritize them.
• 00:09 We call this qualitative risk analysis, and
• 00:12 our primary tool to do this is the risk matrix.
• 00:15 Most organizations are operating with limited time and resources, so
• 00:20 it's important to minimize threat risks and maximize opportunity risks.
• 00:25 However, since there are constraints, you can't minimize all threats and
• 00:30 take advantage of all opportunities.
• 00:32 And it's probably no surprise that some risks will have a different impact
• 00:36 than others.
• 00:36 Therefore, you need to prioritize which risks to address.
• 00:40 This prioritization is known as qualitative risk analysis.
• 00:44 In addition, as industry and organizational conditions change, and
• 00:48 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.
• 01:02 Also, you need to identify which opportunities could have the biggest
• 01:06 impact on the project, and take advantage of those.
• 01:09 Qualitative risk analysis provides focus on these critical risks.
• 01:15 Qualitative risk analysis normally results in placing risks into one of three
• 01:19 categories that often use the stoplight colors to segregate them.
• 01:23 There's the red light.
• 01:25 The red risks are large critical risks that are likely to cause significant
• 01:30 disruption and problems, or significant improvement to the project goals.
• 01:34 If it is a negative risk, the risk could ultimately doom the project to failure.
• 01:40 These risks are likely to happen, and
• 01:42 they will prevent the project from achieving all its goals and objectives.
• 01:46 Next are the yellow risks.
• 01:48 These are cautionary risks.
• 01:50 They're manageable, but they require a lot of effort to manage them.
• 01:54 They must be closely monitored, possibly micromanaged.
• 01:58 They do cause some disruption, but not to the level of project failure.
• 02:02 Finally, there are the green risks.
• 02:04 These risks are not a significant issue on the project.
• 02:07 Many times, the green risks are a red or yellow risk that has been mitigated.
• 02:12 There's still an issue, an irritant, but because of the mitigation actions,
• 02:16 they will not have a significant impact on the project any longer.
• 02:20 The primary technique used for determining the red, yellow,
• 02:24 green status of risks is the risk matrix.
• 02:27 This is considered a qualitative technique because it's not meant to involve
• 02:32 in-depth testing or analysis.
• 02:34 The tool's a matrix, and
• 02:35 each risk will be placed in the matrix at the appropriate location.
• 02:39 One side of the matrix is Probability.
• 02:42 I assess the probability of a risk by considering how frequently it occurred
• 02:47 on the last five or six similar projects.
• 02:49 If it happened on all of them or
• 02:52 almost all of them, the probability is high.
• 02:57 If it didn't happen at all, then the probability is low.
• 02:58 When I look at the Impact side, I consider the existing project plan or
• 03:02 intended approach if the plan is not yet finished.
• 03:05 And I consider the project goal or objectives.
• 03:09 I ask the question what if this happens on this project?
• 03:13 Does that impact the goals or objectives of the project?
• 03:16 And if so, by how much?
• 03:18 A matrix can be created by analyzing opportunities or threats.
• 03:23 Normally, there's a matrix created for each.
• 03:26 Although, I have seen a matrix that tried to combine the two.
• 03:29 Personally, I thought it was kind of clunky, and
• 03:32 I recommend using two separate matrices.
• 03:34 Finally, the size of the matrix can vary.
• 03:37 I've seen 3 by 3s, 4 by 4s, and 5 by 5s.
• 03:41 Any of those will work.
• 03:43 Use the one your organization has adopted or
• 03:46 the one that suits your personal preferences.
• 03:48 The last point I want to make about qualitative risk analysis and
• 03:52 the risk matrix is that it is meant to be a fast and easy approach to filter risks.
• 03:57 The risks that end up in our red zone,
• 04:00 you will normally do in a more in-depth analysis to understand and control.
• 04:04 But the creation of this matrix should be fast.
• 04:08 That leads us to a comment on the rating scales on the risk matrix.
• 04:12 The most common method is to use some type of quantitative scale even though
• 04:17 the risk matrix is actually a qualitative technique.
• 04:21 This is one that I pulled from one of my clients who use a 5 by 5 matrix.
• 04:25 The Impact scale is usually in money, but
• 04:28 I've occasionally seen it in units of time.
• 04:30 I personally don't like to use the quantitative scale because I find
• 04:35 people start arguing over whether an impact is going to be $9,999 or
• 04:41 $10,001 as they try to force a risk into a particular color.
• 04:46 If you're using a quantitative scale, try to relate your risk to something that
• 04:51 actually happened on another project in order to quantify your impact.
• 04:55 I prefer to use a qualitative scale such as this one, which is for a 3 by 3 matrix.
• 05:02 In this case,
• 05:03 we rely on the subject matter experts to help us assign the correct rating.
• 05:07 One more point about the value of a risk matrix.
• 05:09 I've had projects where stakeholders were upset with the team and
• 05:13 felt that they were being too negative when they presented their list of risks.
• 05:17 By showing them the risk matrix,
• 05:19 the team is able to explain why they think a particular risk is red or yellow.
• 05:24 The matrix forces the stakeholders to consider the probability and
• 05:28 the impact on this project, not just an emotional response when prioritizing risk.
• 05:33 Risk prioritization is an important role of project management.
• 05:37 Project time and resources are constrained.
• 05:40 Risks must be prioritized to make effective use of the scarce project
• 05:45 resources.

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