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Risk analysis involves the following major activities:
- Evaluate the properties of a risk to determine the expected impact and probability of the risk’s occurrence. Each risk is categorized as high, medium, or low, based on the impact of the risk on the various project elements (e.g., cost, schedule, and quality).
- High risk — a major problem exists with definite, serious financial exposure and/or customer dissatisfaction. Failure to manage the risk would result in project failure. Aggressive management action is required to bring the project under control.
- Medium risk — a significant problem currently exists that requires corrective planning. A probability exists for exceeding estimates or budgets, customer dissatisfaction, and/or limited financial exposure. Failure to manage the risk would result in degradation of the project performance. Management action is required to bring the project under control.
- Low risk — the project is currently under control. However, existing or potential problems have been identified that will require positive management attention to maintain stability.
- Determine the likely time frame during which the risk can be expected to occur.
- Determine the probability of risk occurrence. Probability is categorized as high, medium, or low, based on the likelihood that the risk will occur.
- Based on risk impact, probability, and time frame, determine critical risks and those of the highest priority. It is important to note that priorities change throughout project execution, and it is critical to continually review risks and prioritization.
Analysis of risk factors continues throughout the execution of the project as conditions change. Issues, changes, schedule delays, defects, and staffing anomalies are a few examples of the conditions that may arise that could affect risk.
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