Which step in the risk management process is focused on determining the probability and severity?

Are you curious about how to determine the Probability and Severity of the various risks in your Project? You do not need to look further! This article covers a detailed explanation of the Step in the Risk Management Process that determines the Probability and Severity of the Risks. By the end of this article, you will be easily able to assess how probable the risk is and how severely it can impact your project.

Risk Management Process all the steps from identifying the risks to mitigating them. Thus, when it comes to Project Planning and Project Execution, the experts focus a lot on identifying various types of risks that can affect their project workflow. However, it is also important to calculate its likelihood and its level so that we can prioritize them and resolve them one by one.

In this article, we will learn about the crucial step of identifying the Probability and Severity of the Risks so that our risk response plan becomes fool-proof in action. So, let us start without any delay.

Risk Management Process Overview

The Risk Management Process is the collection of sequential steps that enable us to avoid or mitigate the impact of risks on our project. It is important to understand that some risks in the project cannot be resolved. In that case, the Risk Management Process helps us in the Risk Acceptance so that its effect becomes negligible.

In more simple terms, if the benefit of any risk outweighs its cost, then the Risk Management Process outlines the Risk acceptance strategy. Otherwise, we have to completely remove that risk. For example, if you implement your Project using a new technology, there is always a risk with that. But, if it helps in faster execution and delivery, the risk is accepted with some strategy to reduce its probability and impact.

Focus on Probability and Severity

Before moving to the step of Probability and Severity Analysis, let us see why they are important for Risk Management. Generally, two factors are important in the risk analysis process, the qualitative and quantitative measure of the Risks.

The Risk Probability is a quantitative factor that tells us how frequently the risk can occur across the Project Phases. This helps to know what type of risks occur most frequently in our project. Thus, we can easily know the weak point of our project and form a more targeted risk mitigation plan.

On the other hand, the Severity of the Risks is the qualitative factor that tells us the intensity of risk. More simply, how seriously the risk can impact our project execution is determined using the Risk Severity scale. Now, let us see the step in Risk Management that allows us to know the risk probability and severity.

Specific Step: Risk Assessment

Risk Assessment is the step in the Risk Management process that is focused on determining the Probability and Severity. This step works on two critical parameters, which are Probability and Severity.

In the Risk Assessment Step of the Risk Management Process, both the Probability and Severity can determine as a quantitative or qualitative value. For example, in a certain project, the probability of the risk can be 30% if it is expressed as a numerical value. Or, it can be marked as ‘less frequent’ in qualitative analysis. The same applies to the severity that can be labeled as ‘Medium’ as a qualitative value or ‘80% increase in delivery time’ if it is evaluated as quantitative severity.

Hence, determining the Risk Probability and Severity helps us in efficient resource allocation, and strategic decision-making while continuously monitoring and improving our entire lifecycle of Risk Mitigation Plans. Now, let us see some examples of Risk Probability and Severity Determination.

Case Studies for Risk Assessment

• Suppose our Project has a dependency on third-party software or applications, it may suffer failure due to response failure from the third-party application. Thus, you have to calculate how likely this issue can impact the project.
• The construction project of a building faces the issue of permit delay, In this case, we have to find the likelihood of this risk as it can cause financial penalties, contractual issues, etc.
• Another example can be the shift in requirements of the stakeholders. This is considered as a risk because it can impact the overall project’s alignment with the business goals. Therefore, the calculation of risk probability and severity plays a crucial role in project management.

Challenges in Determining Probability and Severity

• It is difficult to maintain a common understanding: The opinions and understanding of the team members may vary for each risk. This can lead to inconsistencies in the risk mitigation plans.
• We cannot easily adapt to the dynamic environment: The uncertainties in the risks lead to fluctuation in the risks or issues. This can also cause the changing probability and severity. Hence, the overall project process is affected.
• Project managers face difficulty in risk quantification: The risks which are based on the qualitative scale cannot be easily interpreted in quantitative form. It can be challenging to allocate time, cost, and resources easily.

Strategies for Improving Probability and Severity Determination

After we have seen the Probability and Severity as focal points of the Risk Assessment Step, let us explore some techniques using which this step of Risk Assessment determines the Risk Probability and Severity.

Risk Matrix:

The Risk Matrix is the visual tool that maps the Risks with their probability and severity levels. It simply captures the qualitative and quantitative analysis of the Risks. In a Risk Matrix, the Probability of the Risk can be measured in terms of percentage and the severity can be categorized as low, medium, or high. However, number of severity levels depends on the project requirements and phases.

Stakeholder Reviews:

Some projects include the Risk Assessment step using communication with Stakeholders and other third-party consultants. The Project Experts conduct stand-up sessions and meetings to get reviews from the experts about the Probability and Severity of Risks for client or stakeholder-based scenarios.

Data-Driven Analysis:

Often in the Risk Assessment Step, the insights of Probability-Impact Analysis and Severity are extracted from the past data and then both factors are determined for the current scenario. Thus, the data-driven analysis helps in determining the risk probability and severity from the context of strategic decision-making.

Conclusion

In conclusion, we understood that the Risk Assessment is a step in the Risk Management process that is focused on determining the Probability and Severity. This step tells the various qualitative and quantitative measures of the Risks associated with our Project. Thus, we can easily give priority to the risks as per their severity level and probability of occurrence in the project.

You are now able to determine the Risk Probability and Severity using Assessment in your Project and ensure a risk-free project delivery.

FAQ’s

Q.1 Are there any global standards to be followed in Risk Management?

Ans: There are many global standards for the Risk Management Process like the ISO 31000 which was published in the year 2009 and revised in 2018. It outlines the Enterprise Risk Management(ERM) principles and Risk Assessment guide. There is another standard namely British Standard(BS) 31100 which was published in the year 2011 to define the Risk Management Principles.

Q.2 What is Residual Risk in the Risk Management Process?

Ans: Suppose the Project Risks have been identified and action plans have been implemented. But there is a risk that still exists even after a risk-mitigation plan has been executed. That risk is called a Residual Risk.

Q.3 Is SWOT Analysis a part of Risk Management?

Ans: SWOT Analysis is not directly a part of the Risk Management Process. However, it is used as a complementary tool in the process. SWOT means Strengths, Weaknesses, Opportunities, and Threats. It is a technique for the overall analysis of a Project, from its key strong features to the various risks of the project. In SWOT, the Threats state various risks and issues of the Project.

Q.4 What are the various Risk Response Strategies?

Ans: There are various plans for risk response but mainly, the Risk-Response Strategies include Risk Acceptance, Risk Mitigation, Risk Transfer, and Avoiding the Risk. We can either accept the risk with minimal impact or reduce its impact. Also, we can transfer or share the Risk with a third party so that the impact can be distributed. Or, we can completely avoid the risks.

Q.5 What happens after Risk Assessment?

Ans: The next steps involve developing and implementing risk response plans to address the identified risks.