November 22, 2018
How to Use the Risk Assessment Matrix in Project Management
In today’s age of ever-fluctuating market trends, risks are inevitable. Whether you’re running a start-up or are a part of a giant corporate culture, eventually you’ll be faced with risks that need your utmost dedication for timely mitigation.
Whenever you’re beginning any new task, one of the most important questions that are highly likely to cross your mind is, ‘what could possibly go wrong?’. Some things are bound to go wrong during a project’s lifecycle.
It’s not easy to assess risks, let alone managing them, and if you are not quick to evaluate and control them, all your resources will be at stake. Companies spend plenty of time and financial resources to come up with the right kind of risks to devise valuable measures for lessening their impact.
There are some essential steps that are to be taken for successful risk management. The process of risk management begins with risk assessment, which moves forward to risk analysis, and what needs to be done to minimize the risks. Let’s have a quick glance at some of these steps and what each one of them entails.
Identifying the risks associated with business or business operations is one of the first steps in risk management. This shows that you’re proactive enough to minimize the damages as much as possible.
Some companies develop checklists from previous experiences of past projects for risk identification to manage risks. These checklists are essentially developed to identify potential risks associated with each new project.
You might be asking ‘what happens after the risks are identified?’ A key process of risk management called ‘Risk Analysis’ begins.
Risk analysis is no child’s play. There’s a series of steps that need to be vigilantly taken for the effective management of risks. After the company or a team has been successful in pitching all the right potential risks, the next step is to carefully evaluate them.
Companies need to be hawk-eyed when it comes to the analysis of risks. It’s imperative to thoroughly examine each and every factor associated with them and their possibility of occurrence for designing a strategy that will be apt in tackling them.
Sounds like a lot of work? This is where risk assessment matrix comes into play.
What is the Risk Matrix?
The Risk Matrix is also known as the Probability Matrix or Impact Matrix. It is an effective tool that assists in risk evaluation by considering the probability or likelihood against severity linked with the potential risks of a project.
A risk matrix is a visual representation of the risks involved in a particular project to help businesses in preparing a mitigation plan and decision making. In short, it is a tool that assists in reducing the risk impact that might cost business adversely otherwise.
nTask’s Risk Assessment Matrix Module
Let’s have a look at this risk matrix by nTask and understand how it helps in visualization of risks for taking timely decisions:
The matrix consists of a grid, with Likelihood or Probability of occurrence at the Y-axis and the consequent impact on the X-axis. These two elements are considered for accurately depicting the nature of risk.
The probability is visualized in terms of its likelihood but can be shown in terms of percentage as well, whereas the severity is shown in terms of its possible impact.
To elaborate more on the “risks” side of the risk assessment matrix, the best course of action is to place the risks in the appropriate matrix slots. Some people interpret them as “Cells”, however, their purpose is to correspond to the likelihood of the eventual outcome.
In nTask, as per the latest version 2.0 update, you can create risks and assign team members roles who are responsible for handlings those risks. For instance, if you know that there is an ongoing technical difficulty in a project that can hinder the team from meeting a deadline, then this kind of risk gets an ‘Extreme’ priority.
We have already talked about risks’ priority in this write-up. Low risks are usually labeled with some acronym that does not raise too many alarms. There is a color combination, as well, for risks, according to their priority status. Red denotes High/ Extreme risks.
Take a look below for more details on how risk priority works in a typical risk assessment matrix for project managers:
1. Critical/ High Priority Risks: These risks have a high call to action significance. They are a high priority, come with a special affix and need to be taken care of immediately. Just as we mentioned earlier, Extreme risks are escalated to usually meet a deadline, cover up a folly or deliver an MVP on time in an SDLC environment.
2. Major Risks: These risks are also high, but usually rated low as compared to the ‘Extreme’ risk cell in a risk assessment matrix. High risks can be labeled with the alphabet: ‘H’, and come with a special color code like every other associated cell in the matrix.
3. Moderate Risks: These risks are also dubbed as medium level risks. They are not high priority and are associated with devising an alternate strategy to overcome any setbacks throughout the lifetime of an ongoing project. Risks of such category allow for a little wiggle room – i.e. to help managers work around otherwise strict deadlines, etc.
4. Minor Risks: Last but not least, these risks denote low weight in the risk assessment matrix. It does not mean that they are not important to begin with. It’s just that the team can get to them after the rest of the risks have been mitigated.
At nTask, things are done a little differently when it comes to risk assessment matrix. Risks are assessed on the basis of severity. The color code is assigned to them by default. A moderate risk can get a ‘Red’ color, just as a high priority risk if the system determines that this risk has serious consequences.
You can use nTask by signing up for an account to get a hang of how risk assessment matrix functions. We have a very unique and interesting perspective of risks, their importance, and the color-coding scheme.
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The risk likelihood is the probability of the risk’s occurrence involved in your projects and tasks. The likelihood of risk is broken down in four percentage ranges:
Risk Impact (Risk Severity)
Normally, the consequent risk impact has 4 dimensions:
The grid is used to assign a particular number to the risk which is obtained by multiplying Probability with Severity or Impact. The resulting figure helps in understanding the nature of risk and what needs to be done in order to minimize it.
Apart from these divisions, there are three major zones inside the matrix as well. After the calculations are done, the quantified risk falls into these three zones:
- A low-risk zone that is considered acceptable (Yellow)
- A moderate risk zone that may or may not be acceptable (Green)
- A high-risk zone that is considered to be critical or unacceptable (Red)
These zones make the result of a risk matrix more transparent by giving out a clear-cut division regarding the future steps that need to be taken.
Let’s explore some of the advantages of the Risk Matrix and how it can be effectively utilized for risk management.
Advantages of Risk Matrix for Risk Assessment
- Helps in prioritizing the Risks with the level of severity
- In planning risks, it helps with neutralizing the possible consequences
- Helps in analyzing the potential risks with minimal effort
- Assists in improving the safety measures of the organization
- Gives an overall view of the potential risks of a project to the team
Risk Matrix for Risk Management
You might have heard of the quote, ‘The greater the risk, the greater is the potential reward’. If you don’t take any risk to step out of your comfort zone, you’ll never improve your current position.
But that doesn’t mean there is no need for proper risk management. Without it, you can possibly create havoc in your organization and can be met with some unforeseen circumstances whose control will not be in your hands. This can be tackled perfectly with Risk Assessment Matrix.
Utilizing risk matrix for risk management will not only reduce the likelihood of the risk but will reduce the magnitude of its impact on operations as well. It provides timely data that quantify the threats and greatly facilitates the organization to take some coherent steps for decreasing the potential chaos that might occur in case of ambiguity.
The numerical values in the risk matrix provide a powerful way to depict the company’s exposure to risks and how much effort is needed to minimize them. They make the entire situation clear by making use of each division inside the matrix and give insights regarding the future approaches that need to be adopted.
Do Risks Keep You Up at Night?
As a project manager, do you contemplate handling risks and their eventual impact on a project timeline? If so, it is best to create a risk assessment matrix and incorporate it within a project management software at your company.
Having a clear vision of the risks in any company is a life-changing experience. You can’t turn a blind eye toward them. Some project managers procrastinate and try to handle risks the old fashion way – i.e. according to the ‘Just do it’ management principle. Things have changed these days and it is better to adapt to new strategies instead of sticking with the old ones.
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Summing Things Up
It’s important to understand that a risk matrix is only a tool, not a complete solution for your needs. It all comes down to the intellectual worth of the people interpreting the matrix’s results. Alternatively, you can a risk management tool to help you identify and assess the likelihood and probability of risks of your projects.
A carefully sorted out strategy for risk mitigation always comes in handy in case of unforeseeable events and is a great means to equip the team with an effective contingency plan.
The essence of the story? Risk Management should be a mandatory requirement whenever a new project planning is being done for staying as informed about the risks as possible.
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