Risk Analysis in Project Management to Support Proactive and Holistic Project Plans
Blog: Monday Project Management Blog
Risks are inherent in any business or project activity, and good project risk management helps you approach each step with an eye toward what might go wrong so you can keep things on track. Understanding what can affect your project before you start it — and maintaining that knowledge throughout project work — lets you take a proactive approach to keep things moving forward the right way.
After reading this article, you’ll have a better understanding of what risk analysis in project management is and how you do it. We’ll also introduce monday.com, a powerful Work OS that helps you manage projects and all the risks associated with them.
What is risk analysis in project management?
Risk analysis refers to the act of risk assessment that must happen before and during a project. Project teams gather data, identifying potential risks associated with project efforts, which can include factors that might have an undesired impact on the project as well as ways the project itself might have undesired outcomes.
Some elements of risk analysis in projects include:
- Identifying risk categories and specific risks: To understand which risks might affect your project, you might look at past experiences and data. Teams may also brainstorm potential risks as they talk about the desired workflows or what efforts the project might entail. Common categories for risk include technical or resource requirements, reliance on external resources or customers, project dependencies, budgets, and schedules.
- Defining the probability of risk occurrence: Some risks are more likely than others. It’s a good idea to assign each potential risk a probability as a percent. For example, if it’s unlikely a certain type of risk event might occur, you can assign a percentage between 1 and 30% while you would assign a risk that’s highly likely a percentage between 80 and 100%.
- Understanding the impact risks might have: Not all risk events impact projects to the same degree. Having a key member of a project team — the only one who knows how to perform a certain task — is much more impactful than someone getting sick for a few days, for example. Rank risks as low/marginal (10), medium/critical (50), or high/catastrophic (100).
By multiplying the numeric value you assigned for the probability of occurrence by the impact number you assigned, you can create a matrix that lets you know which risks pose the most threat to your project. Those details inform your project plans and risk management process.
Analyzing risk with help from actual statistics and data is helpful, but it’s not always possible. Learn how you can analyze risk quantitatively as well as qualitatively below.
Qualitative vs. quantitative risk analysis
Qualitative risk analysis tends to be more subjective because it’s not backed by statistics or a lot of data. Instead, teams brainstorm potential risk events and rate them on numeric scales for likelihood and consequences.
For example, a team tasked with implementing a new invoice workflow might say one risk is losing an invoice. The likelihood might be 1 (on a scale of 1 to 5) while the impact is 4 (on a scale of 1 to 5). Another risk might be paying an invoice late. The team might say the likelihood is 4 while the impact is 3. The team can multiply likelihood scores by impact scores to understand which risks are priorities to keep in mind.
Qualitative risk analysis may be the right approach if you’re building a new process or dealing or working on a project where historic data isn’t an option.
In contrast, quantitative risk analysis relies on actual data to come up with likelihood and impact assessments. Based on previous data, for example, it might be 20% likely that an invoice is lost and 30% likely that an invoice is paid late. Starting with actual data makes risk analysis more accurate, so quantitative analysis is preferred when it’s possible.
Whether you’re using data or subjective brainstorming, starting with a specific risk analysis method can help your team come up with more accurate results.
Risk analysis methods
How to create a risk matrix
You’ve actually been reading about a great risk analysis method throughout the first part of this article. It’s known as the risk matrix or probability/consequence matrix.
To create this matrix, create a numerical scale for likelihood and consequence. For example, you might go with a scale of one to five with one being the least likely/least impact and five being the most likely/most impact. Create a grid where the numbers for consequence are the vertical axis and the numbers for likelihood are the horizontal axis.
| Very rare (1) | Not likely (2) | Possible (3) | Very likely (4) | Almost definite (5) | |
| Negligible or no impact (1) | 1 | 2 | 3 | 4 | 5 |
| Minor impact (2) | 2 | 4 | 6 | 8 | 10 |
| Moderate impact (3) | 3 | 6 | 9 | 12 | 15 |
| Major impact (4) | 4 | 8 | 12 | 16 | 20 |
| Catastrophic impact (5) | 5 | 10 | 15 | 20 | 25 |
Consider the total risk score for each risk you brainstorm by multiplying the consequence rating by the likelihood rating. Record the scores on a separate table or risk register where you list all possible risks. Sort the risks by the final score to see which ones are more extreme than others.
Using the bow-tie analysis
Teams looking for a way to understand specific risks might want to use the bow-tie analysis method. This analysis starts with a specific risk and teams create a brainstorming document that’s split into two sides or categories. The first lists all the potential factors that might contribute to the risk. The second lists potential solutions for each of the potential causes.
A bow-tie analysis is a great follow-up tool after conducting a risk matrix exercise. Project teams can use the bow-tie analysis to come up with potential solutions to avoid extreme risks for their projects.
As you can see, risk analysis is often a collaborative process. Plus, once you identify risks and ways to solve for them, it’s important to have tools that allow teams to work together toward those results. monday.com’s Work OS offers everything you need to analyze and solve for risks together.
How monday.com helps projects teams analyze and solve for risks
Our powerful Work OS offers a wide range of collaborative tools that keep project teams on the same page, ensure streamlined workflow, and support easy documentation. Some ways you can use monday.com to analyze risk and come up with collaborative solutions for your projects include:
- Shared documentation: You can use workdocs to work together to create documents when brainstorming risks or creating processes to avoid them. Team members can see changes in real-time, integrate comments and updates, and even add visuals to help ensure the message is clear.
- Specific templates: Start with some of our templates for risk management and analysis, including the Program Risk Register, which helps you mitigate potential risks, or the Fishbone Diagram Template, which helps teams think more clearly about root causes for potential risks.
- Boards for defined workflow: Create boards to manage your projects and build in color-coding, communication options, and automations to mitigate risks you came up with during project planning.
Find out more about risk analysis in the FAQs so you can get started planning projects with an eye toward risk on monday.com.
Frequently asked questions about risk analysis
What are the three steps of risk analysis?
The three steps of risk analysis are:
- Risk identification: Teams work to identify potential risks that might impact the project
- Risk analysis: Teams use tools like risk matrices to understand the impact and likelihood of risks
- Risk evaluation: Teams determine which risks pose the greatest threats and work to solve for them
What is a risk analysis example?
An example of risk analysis is when a software team works to develop a consumer-facing app that requires people to log in for full features. The team might identify a risk that consumer login and other information could be at risk if there’s ever a data breach. The team would then work to identify all potential causes for such a risk and implement proactive solutions to avoid or mitigate the risk.
monday.com supports proactive approaches for projects and risk management
Staying well-informed and working together seamlessly as a team are some of the best things you can do for project success. The same can be said for risk management — the team that works well in real-time to analyze and solve for risks is generally more likely to succeed.
monday.com’s collaborative communication and workflow features support project teams in doing just that. Keep everyone on the same page, ensure teams have anytime access to important data, and support seamless workflows with customized boards and other tools on our Work OS.
The post Risk Analysis in Project Management to Support Proactive and Holistic Project Plans appeared first on monday.com Blog.
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