Published on July 22, 2020
Updated on July 28, 2020
Read time 10 minutes
How to Use the Risk Assessment Matrix in Project Management?
In the modern, ever-changing, digital world, encountering risks are certain. And if you are managing a project in today’s fast-paced business environment, you should consider analyzing potential project management problems with a risk assessment matrix.
Yes, there are a lot of digital tools that can be used to automate your risk identification and risk analysis, but this article will explain how nTask can help you to create a risk assessment matrix in just a few clicks.
A risk assessment matrix is a system that was developed to control risk and help you plan your project effectively. Let’s examine the risk assessment matrix and its relationship with effective risk management in detail.
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We will cover in Risk Assessment Matrix:
- What is the Risk Assessment Matrix?
- How to Create Risk Assessment Matrix (Steps)?
- nTask Risk Assessment Matrix
- Risk Efficiency Measurement
What is Risk Assessment Matrix?
Risk Assessment Matrix, also known as Probability and Severity risk matrix, is an effective tool that is designed to help you minimize the probability of potential risk to optimize project performance.
Essentially, a Risk Matrix is a visual depiction of the risks affecting a project to enable companies to develop a mitigation strategy to enhance their decision-making.
There are many things that could go wrong during a project’s lifecycle, and deal a huge blow to its timeline. While many project managers are overwhelmed by the thought of risk let alone controlling them, the smart ones turn to nTask Risk Matrix to stay on top of their game. They know well that if they’re not swift to assess and moderate them, all other assets will be at stake.
Learn what is Strategic Risk Management:
Benefits of a Risk Assessment Matrix
Here are some of the advantages of using a risk assessment matrix:
- It helps you to approach risks according to its level of urgency
- It simplifies the risk management process
- It enables you to spot risk with little effort
- Information is registered and evaluated easily
- It showcases the risk mitigation efficiency of an organization
- It effectively nullifies any undesirous impacts
How to Create a Risk Assessment Matrix?
There are some fundamental steps needed to achieve successful risk management for projects using the risk assessment matrix. The process starts with risk identification before proceeding to analyze in order to find out what needs to be done to curb the risks.
Step 1: Risk Identification
Defining and identifying the risks associated with a project is the initial phase in risk control. The scope of the project and task is an indication of a proactive approach to limit damages as much as possible. Pinpoint as many risks as you can to gain various perspectives. This can be done by brainstorming with the project team to acknowledge events such as fire, theft, flood, refunds, refusal by vendors, or any uncertain business situation.
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.
Some considerations for project risk identification include:
- Project scope statement
- Cost management plan
- Human resource management plan
- Stakeholder register
- Activity cost estimates
- Project documents
Step 2: Risk Analysis
The real business of project risk management starts with risk analysis. After the project team has described all the potential risks, the next step is to evaluate them carefully. nTask Risk Assessment Matrix focuses mainly on the odds and helps you carefully evaluate the risk effects.
You will need to analyze the expected damage that risk can make and come up with strategies on how to reduce its impact. The best thing is to have a meeting with the stakeholders and show them real data analysis. 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.
Overall, project managers adopt an eagle-eyed approach to risk analysis and that is why every risk component is examined to develop a roadmap for risk resolution.
Step 3: Assessing Risk Impact Level
Here you will need to assess the impact level of the project risk. You have to identify if the risk impact is minor or critical for your project. This will help in minimizing the risk and gives you a clear direction to complete the project as planned.
The nTask risk assessment matrix involves weighing probabilities against the impacts of risks when they occur. The outcomes of such evaluation help classify risks according to the most severe and the less critical. In the risk table, you will see how high-risk and low-risk factors are displayed in the grids.
Step 4: Risk Prioritization
nTask risk assessment matrix shows how project risks are prioritized for at different levels. Project risk assessment is a continuous process and needs to change concurrently with modifications in your organization or with consumer trends. If the matrix is reviewed only once a year, developing risks may be overlooked, leading to issues down the line.
1. Critical/High Priority Risks:
These risks require prompt responses and quick action. They are designated high priority because they need to be addressed swiftly. Critical risks are intensified to meet a deadline, resolve an error, or deliver an MVP timely.
2. Major Risks:
These are also classified as High Risks, but at comparatively low-risk compared to the extreme designation in the probability and severity risk matrix. Major/High risks are denoted by “H,” and have a unique color code like every other related cell in the matrix.
3. Moderate Risk:
These risks are tagged with mid-level risks. They are not a high priority and are not known to be used to develop a mechanism to resolve bottlenecks throughout the lifespan of a progressing project. This risk classification serves to help managers work around time constraints or perfect the quality of the project deliverables.
4. Minor risks:
These risks are of low weight. They are not of big concern but that doesn’t mean that they are not important. It’s just that the team can get to them after the rest of the risks have been mitigated.
nTask Risk Assessment Matrix
nTask enables you to generate a risk assessment matrix designed to provide flexible risk reporting for well-informed decision-making.
The risk matrix excel comprises a grid, with the Likelihood or Probability of Occurrence at the Y-axis and the resultant Risk Impact on the X-axis. These two components are developed to represent the actual nature of risk.
The probability is visualized and can be expressed as a percentage, whereas the severity is expressed in terms of probable impact.
The risk component of the risk assessment matrix is placed in appropriate matrix slots called “Cells,” with its function is to show with the probability of the resulting risk outcome.
At nTask, 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. For example, if you are aware of the likelihood of severe technical difficulty hindering a project, then this kind of risk gets the “Critical” designation. Critical risk also expresses the likelihood of severe injuries, potential damages, and financial loss.
“Minor” indicates that little attention is required as the risk has a low probability of occurring.
You can use nTask conveniently by creating an account for FREE, to get a hang of how risk assessment matrix works. We have a very unique and interesting risk management features to help you run successful projects using risk mitigation plans.
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Risk Impact (Risk Severity)
In nTask, risk impact occurs in 4 levels:
- Minor (Blue)
- Moderate (Green)
- Major (Orange)
- Critical (Red)
This is the possibility of the occurrence of risk in your projects. nTask Risk likelihood is split into four ranges of percentages:
- 0-25% – less likely to occur
- 26-50% – occasional
- 51-75% – likely to occur
- 76-100% – likely to cause serious problems
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:
- Yellow – an acceptable low-risk zone
- Green – a moderate risk zone that may not be acceptable
- Red – a critical zone that is high risk and unacceptable
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.
It is easy to track the status of the risk within nTask application. The preset risk statuses are:
Learn the risk management steps:
Risk Efficiency Measurement
This audit is an independent measurement of the risks with recommendations to increase the effectiveness of risk management being performed in the company. This audit evaluates:
- Exhaustiveness and granularity of risks being identified by the experts in the company
- How good are we at identifying risk that is being discovered in the company?
- Linkage of project risks to organizational risks
- Effectiveness of mitigation or contingency plan put into action by the company
This audit is generally performed by the independent technical experts from the market that are the judges of the way, the risk management principles are being applied in a certain company. The key elements of this audit are:
- Identify areas of importance for risk analysis for a project
- Potential additional risks identified based on the review
- Customized checklist to evaluate the risks of a project
- Risk radar – risk-prone areas of the product group
- Top 10 risks in the organization from key projects, which requires management attention
The most important risk analysis is done by monitoring the risk metrics throughout the project closure procedure. All of the details that we receive from this review are the lessons learned which we can use in the future to tackle many problems related to risk:
- Number of risks that occurred during the project closure
- Number of risks that were identified during the project closure
- Was the impact of the risks as severe as originally thought or was it a minor risk that could have been ignored from the start of the project?
- How many risks recurred during the entire lifetime of the project?
- How do the actual problems and issues faced in a project differ from the anticipated risks that the project might have experienced in its lifetime?
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.
Things have changed these days and it is better to adapt to new strategies instead of sticking with the old ones.
Besides, we have matrices for everything, don’t we?
A risk assessment matrix, or simply a risk matrix, may change the way these old-fashioned managers get things done. Technology does bring change in people.
Look at your parents or grandparents for that matter. A decade ago, they were against the excessive use of computers. And now, they cannot spend an hour without their smartphones.
Therefore, if you are one of those guys or you happen to someone reluctant to give up the old methods, a little tech always helps.
Everyone loves keeping things in control and they fear what they don’t know.
If managers can somehow understand the concept of risk assessment and how to minimize it, they will do it with more interest. The reason behind this is that it is quite an accomplishment to save the company from potential risks. Makes you feel like a hero.
You will be better equipped to face it
Let’s get one thing straight; the risk is pretty much inevitable.
However, it is not something that you can’t alleviate. You can use any method you deem fit. But know this; intuition and gut feeling does not work every time.
That is why ad hoc methods are a thing of the past. The best kind of planning is pre-planning. Using a risk matrix will increase your chances of minimizing, if not completely avoiding, various types of risks.
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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 use 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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