Assessing Risk

A comprehensive guide to all aspects of risk management is available from our Risk Management infoKit

What is immediately apparent is that there are an almost limitless combination of external trends and forces which are either impacting already or may in the future impact on your organisation. Identifying them is one thing, choosing which to plan for and devote resources to preparing for is quite another. What is therefore required is an appreciation of both their probability and their impact in order to make an informed decision as to what represents an appropriate level of response.

Risk management is a well established approach which is fundamentally about making better decisions. In order to decide how serious a risk is risk management tends to advocate looking at two parameters mentioned earlier, probability (the likelihood of the risk occurring) and impact (the consequence if the risk does occur).

Impact can be assessed in terms of its effect on:

• Time
• Cost
• Quality

There is also a third parameter that needs to be considered: Risk proximity - when will the risk occur?

Proximity is an important factor yet it is one that is often ignored. Certain risks may have a window of time during which they will impact. A natural tendency is to focus on risks that are immediate when in reality it is often too late to do anything about them and we remain in 'firefighting' mode. By thinking now about risks that are 18 months away we may be able to manage them at a fraction of the impact cost.

Another critical factor relating to risk proximity is the point at which we start to lose options. At the start of a project there may be a variety of approaches that could be taken and as time goes on those options narrow down.

Assessment of both probability and impact is subjective but your definitions need to be at an appropriate level of detail for the work in question. The scale for measuring probability and impact can be numeric or qualitative but either way you must understand what those definitions mean. Very often the scale used is High, Medium and Low. This is probably too vague for most projects. On the other hand a percentage scale from 1-100 is probably too detailed.

Use enough categories so that you can be specific but not so many that you waste time arguing about details that won't actually affect your actions. Experience suggests that a five-point scale works well for most projects.