Moving from Qualitative to Quantitive Assessment - Assigning Numeric Scales

At this point you may wish to add a numeric scale and use some form of traffic light system to break the risks into groups requiring different response strategies. This table uses the same linear scale for both axes:

The next table doubles the numeric value each time on the impact scale. This is perhaps a more useful model as it gives more weight to risks with a high impact. A risk with a low probability but a high impact is thus viewed as much more severe than a risk with a high probability and a low impact. This avoids any 'averaging out' of serious risks.

It is questionable whether the amber risks warrant separate classification in terms of your response strategy and it is suggested that you examine each in turn and either 'promote' or 'demote' them to red or green. This can be important in assessing the overall level of risk especially if you opt for the straightforward linear scale in the first table. This means particularly being clear about what you mean by a 'medium' level of probability. Suppose a risk has a 50% likelihood of occurring and may cost you £20k. This is as likely to happen as not yet people often tend to ignore risks labelled 'medium'. There is an argument for saying that it is hardly worth breaking down categories of probability over 50%. Once a risk is as likely to happen as not you should plan for it. The diagram below shows the previous example with the amber risks demoted or promoted (here those risks with a value of 10 or above have been promoted to red, below 10 demoted to green).

Cutting your risk categories down in this way leaves you with two sets of risks requiring a response strategy:

Red Risks = Unacceptable. We must spend time, money and effort on a response. This is likely to be at the level of the individual risk.

Green Risks = Acceptable. This does not mean they can be ignored. We will cover them by means of contingency. This means setting aside a sum of money to cover this group of risks. We will look at how you calculate this sum in the section on Calculating Contingency.

In the above example, progressing with the project itself may be called into question given that more than half the risks are now indicated in red.