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Qualitative Risk Analysis
March 30, 2009 | Author: PM Hut | Filed under: Risk Management, Risk Quantification & Analysis
Qualitative Risk Analysis (#4 in the series How To Effectively Manage Project Risks)
By Michael D. Taylor
Risk is always to be analyzed by the probability of the event occurring and the consequence if it does occur, and should focus on the project schedule, costs, scope, and quality.
- Probability – the likelihood that a risk condition will actually occur.
- Consequence – the impact that might occur from the risk.
The estimates of probability and consequences are completely dependent upon subjective estimates. This means that if an estimator is unskilled or inexperienced the estimates will be inaccurate. “Garbage in—garbage out!” If the project manager is not confident in the estimator’s judgments then subject matter experts from other projects should be invited to participate in the qualitative analysis process.
Even though these estimates are dependent upon subjective perspectives the project manager can offer “catch phrases” that can convert qualitative descriptions into quantitative assessments. The tables below illustrate how this can be accomplished.
| Probability (P) | Point Values |
| You’d be surprised if this happened. | 0.1 to 0.2 |
| Less likely to happen than not. | 0.3 to 0.4 |
| Just as likely to happen as not. | 0.5 to 0.6 |
| More likely to happen than not. | 0.7 to 0.8 |
| You would be surprised if this did not happen. | 0.9 to 1.0 |
| Consequence Point Value | Technical Consequence (Ct) | Schedule Consequence (Cs) | Cost Consequence (Cc) |
| Low (0.1 to 0.2) | Minimal impact to product performance | No impact to end date | Within budget |
| Minor (0.3 to 0.4) | Small reduction in product performance | End date will slip less than 10% of the project lifecycle | Less than a 10% cost overrun |
| Moderate (0.5 to 0.6) | Moderate reduction in product performance | End date will slip between 10% to 15% of the project lifecycle | 10% - 20% overrun |
| Significant (0.7 to 0.8) | Significant reduction in product performance | End date will slip between 15% to 25% of the project lifecycle | 20 – 50% overrun |
| High (0.9 to 1.0) | Product will not meet customer/user critical needs | End date renders the product useless to the customer | Overrun cannot be funded |
MICHAEL D. TAYLOR, M.S. in systems management, B.S. in electrical engineering, has more than 30 years of project, outsourcing, and engineering experience. He is principal of Systems Management Services, and has conducted project management training at the University of California, Santa Cruz Extension in their PPM Certificate program for over 13 years, and at companies such as Sun Microsystems, GTE, Siemens, TRW, Loral, Santa Clara Valley Water District, and Inprise. He also taught courses in the UCSC Extension Leadership and Management Program (LAMP), and was a guest speaker at the 2001 Santa Cruz Technology Symposium. His website is www.projectmgt.com.
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[...] the qualitative assessments of project risks are completed, the estimates can be examined to determine the magnitude of the risks. A technique [...]