Project Risk Impact and Risk Probability Assessment
Risk impact and probability assessment is the process of identifying the effects of risk, should the risk be realized, on the project’s scope, schedule, budget and quality.
One of the key elements of this process is creating and applying measurable scales of impact and probability. For example, we could apply the following simple scale when assessing the potential impact of a risk:
|Risk Impact 1||Very Low|
|Risk Impact 2||Low|
|Risk Impact 3||Medium|
|Risk Impact 4||High|
|Risk Impact 5||Very High|
During this process, applying a budgetary impact range may be useful. For example, using the same scale:
|Risk Impact 1||Very Low||$0 – $5,000.00|
|Risk Impact 2||Low||$5,000.00 – $15,000.00|
|Risk Impact 3||Medium||$15,000.00 – $30,000.00|
|Risk Impact 4||High||$30,000.00 – $75,000.00|
|Risk Impact 5||Very High||$75,000.00 +|
Generally speaking, the same scale would be used for measuring probability. Using the above examples, a Probability rating of 1 would translate to very low probability.
The combined effect of impact and probability equals overall severity of each risk. This calculation is made by multiplying the Impact and Probability scores — the higher the resulting figure, the more significant the risk. The output of this process is a list of prioritized risks. This helps the project manager and team focus resources on managing and controlling the most likely and highest impact risks and also provides the foundation for contingency planning and contingency budget allocation.