Lecture for Project Risk Management

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Risk Assessment
Risk Assessment Functions | Risk Assessment Process | The Probability-Impact Matrix | Risk Categorization | Risk Owners |Completing the Assessment | Summary This week, we will look at the concept of risk assessment. Risk assessment is the process of analyzing project risks to quantify probabilities and to measure their impact on the project. Once we have measured risks, the process of assigning them to risk owners and preparing a plan on how to deal with them can begin. Our goal here is to be able to pass on to the options and actions step. Details will be needed about the risks and their possible impact on the project so that actions can be prepared and the stakeholders can be assured that risks have been analyzed. |  | | |Risk Assessment Functions | |

Risk assessment involves two basic functions:
1. Determining the probability of the risk occurring (looking at how likely it is that the risk will actually happen) and 2. Determining the impact (if the risk occurs, determining what effect it will have on the project). |  | | |Risk Assessment Process | |

The assessment step is a continuation of the risk workshop that we began in the identification step. During the workshop, you will remember that we developed a risk management plan, and part of that plan was the scales of probability and impact. In doing the assessment, we will be using that agreed-upon scale to measure the risks. The first step in the process is to look at the probability of the risk occurring. There are five levels to choose from: very high, high, medium, low, and very low. But how do we assign these levels? Each member of a team may have a different interpretation of these levels; some views can be very different. We need to reconcile the rankings into one view that everyone can accept. Sometimes, discussion is all that is needed, but if that does not bring consensus, we can bring a technique called heuristics into play. Heuristics are rules of thumb that can be used in case of uncertainty. Three of them that can be used in the case of probability are Availability (Has the risk happened to the individual recently, and is that affecting their opinion?), Representativeness (The belief that the same risk will always occur if the situation is similar. It does not take into account changes that can affect those similar situations.), and Anchoring and Adjustment (This is accepting the first answer because it is almost always right. It can make the rest of the group hesitate to argue the point). The facilitator of the workshop can use these heuristics to ask questions that can reduce the level of disagreement. Questions like "When did the risk last occur?" "Can it really happen again?" and "What do the rest of you think?" can go a long way to opening up the discussion. The hope is that an agreement can be reached; if not, multiple levels are recorded and it is up to the members that proposed the level to clarify their position after the workshop. |  | | |The Probability-Impact Matrix | |

Once agreement has been reached on the probability and impact of the risks, they are put into a P-I matrix. The matrix has the following format: |P |Negative Impact |Positive Impact |P | |R |...
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