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Guide

Quantitative risk assessment

Page 9 of 14 - Risk management

Archived
This content was archived in October 2014

About this guide

  • Published: 30 November 2004
  • Updated: 2 October 2012

View full guide as a single page

Contents

Risk management
  • Attitudes to risk
  • Management attitudes and principles
  • A five step risk management model
  • Identifying risk
    • Cause and effect
    • The risk log
  • Qualitative risk analysis
  • Quantitative risk assessment
    • Costing risk
    • Opportunity costing
  • Risk response planning
  • Risk monitoring and control
  • Wider application

The previous qualitative definition of risk is one with which most project managers will be both familiar and comfortable. However, at the risk of introducing a degree of circularity into the reasoning, none of this means anything at all in real terms unless you have set some kind of thresholds for your qualitative definitions.

What do we mean by a medium risk? If a risk is likely to cause a five-week delay to your project or cost you £10k where does that sit on the scale of ‘very low’ to ‘very high’ in relation to your particular project? You must do these threshold definitions and understand what are high cost and time implications for your project before you can assess risks in a meaningful way.

The following table suggests a general measure of impact in the education environment.

ImpactCostTimeQuality
Very lowVariations manageable by virement against internal budget headingsSlight slippage against internal targetsSlight reduction in quality/scope with no overall impact on usability/standards
LowRequires some additional funding from organisationSlight slippage against key milestones or published targetsFailure to include certain ‘nice to have’ elements or ‘bells and whistles’ promised to stakeholders
MediumRequires significant additional funding from organisationDelay affects key stakeholders and causes loss of confidence in the projectSignificant elements of scope or functionality will be unavailable
HighRequires significant reallocation of organisation funds (or borrowing) to meet project objectivesFailure to meet key deadlines in relation to the academic year or strategic planFailure to meet the needs of a large proportion of stakeholders
Very highIncreases threaten viability of projectDelay jeopardises viability of projectProject outcomes effectively unusable

There are many variations on this table. In the commercial world percentage scales are often used for the cost and time components. The scale frequently goes from less than 5% variation (low) to greater than 20% variation (very high).

You may also see the term ‘insignificant’ variation used in the definition of ‘very low’. Here we contend that a ‘risk’ with an ‘insignificant’ impact does not warrant your time in monitoring and managing it. That is not to say that in your first trawl for identified risks you will not come up with suggestions of this nature that on analysis turn out to be not worth including.

Some purists would say that all of these suggestions should be logged and constantly reviewed but experience shows that the larger and more intimidating the risk log the harder it is to take effective action about the risks that matter. If you are doing your monitoring and horizon scanning thoroughly then changes in the risk situation will become evident to you.

It may be worth taking the above table and putting in specific figures relating to your project eg, a very low risk is one costing up to £500 on our scale and a very high risk is one over £15K or a very low risk is one causing a delay of less than a week whereas a very high risk causes a delay of three months or more etc.

 

  • Costing risk
  • Opportunity costing

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  • Costing risk ›

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