A project manager’s responsibilities include delivering the project within the schedule by avoiding as many obstacles as possible. However, that is not always the case since even the best laid out plans are prone to facing sudden shifts or changes.
This is precisely why project managers ought to run their projects through a Qualitative Risk Analysis to avoid getting swayed by trivial matters and ensuring an accurate assessment. It is a tool used by PMP® officials to plan and execute projects better by mitigating the risk factor.
Read on to gain more insight on what Qualitative Risk Analysis means and how you can use it to your benefit.
What is a Qualitative Risk Analysis?
A Qualitative Risk Analysis is a pre-defined relative for measuring the probability of occurrence and identifying its priority based on its impact. In simple terms, it is a tool used by project managers for risk assessment on individual projects, which rates them according to their likelihood and impact on the project.
So you might ask, what is risk assessment? Risk Assessment is a project analysis technique performed prior to the project kick-off to estimate the severity of the probable risks. It works as a heads-up, so they know what to expect and have enough time to plan the project to avoid those from happening.
In qualitative risk analysis, a project manager is allowed the advantage of rating the likely risks on a scale of zero to one. On the other hand, an impact scale is divided between one to five, with five causing the maximum consequences (budget, time limit, etc.). Moreover, it also gives an overview of the source and divides the issues by source-based and effect-based.
Project managers can often feel overwhelmed with the number of problems that may arise throughout a project. However, not every project requires an equal amount of time and effort. So, to know just what to do with each problem, they rely on tools as such.
Types of Qualitative Risk Analysis
The type of Qualitative Risk Analysis technique used is very project-specific. Factors such as availability of resources and past experiences also play into deciding which analysis method to use.
Probability / Consequence Matrix
Project managers often deem this method as a standard procedure. It provides a practical rank to assess the severity of a project’s risk by multiplying the probability of its occurrence with its impact.
Risk matrices will usually vary in scale. But it paints a clear picture of the driving force of the risk’s severity. That is essential since this procedure allows the project manager time to plan and find effective ways to avoid such probabilities or consequences.
Delphi technique, by Olaf Helmer and Norman Dalkey, works to identify the risk and evaluate the likelihood of its occurrence. After achieving the results, it gets discussed with the entire team and later sent to the experts. The experts then make the final call based on the consensus.
Bow-tie analysis gives the most accurate visual representation. It is more convenient to use because it assesses the risks and projects them in two directions. One is identifying all the roots causing the threats.
And the other is addressing all the probable outcomes of the predicted threats. Thus, this technique allows you the flexibility of managing both sides simultaneously.
Pareto Principle is a technique used to identify the most effective risks. It also goes by “the 80/20 Rule” since the principle thesis states 80% of achievements and 20% of efforts.
Simply put, this technique recognizes the 20% risks that will effectively lessen the 80% of its impact. However, a large-scale project requires multi-attributed weightings such as security data and operational policies.
The term SWIFT stands for Structural What-If Technique. The technique is best suited to determine the possibility of opportunity risks. Here, this technique allows a workshop environment where risks get analyzed in a team-based approach.
The team evaluates all the probable predicted threats surrounding the planning and comes up with backups to support the project.
Difference Between a Qualitative and Quantitative Risk Analysis
Risk assessment consists of both qualitative and quantitative analysis methods. Both the processes sit in the planning stage, with quantitative being the latter procedure. With that said, qualitative analysis is feasible for all projects. However, quantitative has a limited use based on the project type and the data available.
Unlike Qualitative analysis, Quantitative analysis has an objective approach towards analyzing the risk effects. The quantitative method uses verifiable data to evaluate the threats based on cost overruns, resource consumption, schedule delays, and scope creep.
It works to create a value that measures the acceptability of a threat. Since it produces a data-driven result, it has restricted utilization based on the data and specialized tools available for an individual project.
Usually, after identifying the risks and impact of the project through the Qualitative method, the project managers run the project through Quantitative analysis. The Qualitative method allows them to have a subject approach towards the probable risks.
On the other hand, the broader spectrum allowed by Quantitative analysis helps project managers to address issues that need further attention.
How to Perform Qualitative Risk Analysis
For any project manager previously unknown to this concept, Qualitative Risk Analysis can seem taxing. However, keeping your convenience in mind, we have simplified the entire process into the six following steps.
The first and foremost task of this analysis is to detect the risks. So, the trick is to keep it simple by citing down all the obvious threats. Now, this is the beginning stage so, you will not be rating them or scaling them. Thus, no matter how trivial the issue is, you must identify all of them since those will lead to more underlying threats.
You may consider factors like technical issues, external risks like weather, organizational risks like budget and capacity, stakeholders, and project management issues like schedule and scope creep. The tools that can help you effectively carry out this project are questionnaires, SWOT analysis, checklist analysis, etc.
Estimating the Probability
Once you have identified all the risks, it is time to evaluate their likelihood with a scaling device. For this part, you will not be assessing its nature but only the probability of this deviation to occur. For that, you need to scale the project threats on a four-point scale expressed by simple numerical values or percentages. By doing this, you get the advantage of having the risks land on a neutral middle ground. Once you have meticulously assessed the results, you need to rank them in ascending or descending order.
Estimating the Impact
The subsequent process gives you an overview of the individual risk’s impact. When estimating an outcome, you must rate it lower than usual. You may consider factors such as project expenditures, schedule delays, deliverables, and scope creep.
Once you have estimated all the potential impacts based on available data, you need to rate the risks using a numerical scale.
Creating a Risk Matrix
Once you’ve gathered all data necessary, you need to insert them into a Qualitative Risk Analysis Matrix. You need to evaluate the results and the project type to select the qualitative process you want to use.
Consequently, you have to multiply the probability occurrence with the impact, which will show you the exposure scores for every cell within the matrix.
Developing Risk Response
Here, in this part, you need to work as a team prioritizing the risks that require immediate attention. In this team, you will create a contingency plan for all the probability occurrences.
At this stage, you may use mitigation strategies by taking advice from financial advisors, technical specialists, or stakeholders.
Reviewing and Iterating
During this Qualitative Risk Analysis, you may take assistance from higher authorities and stakeholders to achieve a more accurate result. The process helps you assess what to do and how much time to invest in each risk. Risks in project management are unpredictable.
So, you need to keep backup options and be ready for any sudden deviations. When an assessment project works out, you can also use the data to evaluate future projects.
When Should You Use a Qualitative Risk Analysis?
Qualitative Risk Analysis should get incorporated with the planning of the project. When you facilitate the tool early within the project, you can perform risk reviews throughout the project timeline.
Furthermore, you are allowed the advantage to evaluate and decide if some risks need further assessment. For instance, if you see a project that shows risks that need further evaluation through data-driven procedures, you may apply quantitative analysis to it. It also eases the project execution since you now have a better understanding of what to expect.
The process of identifying and rating risk factors takes time and energy. So, when you associate the process in the project’s planning, you are free of the hassle of executing it later throughout the project. You can later carry out the risk responses promptly when and if the risks arise.
Pros and Cons of Qualitative Risk Analysis
A Qualitative Risk Analysis assists you in identifying and prioritizing threats and coming up with cost-efficient contingency plans. Even though the process may seem taxing, you don’t require special tools and skills to carry this out.
Moreover, a qualitative analysis doesn’t depend on verifiable data or project structure. So, you can analyze and conclude the projects that need more attention rather than wasting time on trivial matters.
The disadvantages include, the assessments of this process do not have an objective approach towards projects. As to say, they don’t narrow down matters to emphasize more data-oriented evaluation.
Moreover, there is a lack of differentiation within the risk categories and combined risk assessment. Therefore, the results tend to showcase vague plans, which is that the project heavily depends on the team’s past experiences or past project records.
Qualitative Risk Analysis in Project Management
When you work as a project manager, you are not allowed the luxury to waste time and energy on insignificant issues. You are constantly juggling different projects simultaneously. So, to avoid instances that may cause a delay in project submission, Qualitative Risk Analysis is used by project managers around the world.
With that said, you cannot fully predict every risk because of the uncertain factors playing into its deviation. So every project manager needs to prepare for any abrupt discrepancies, and PMP® preparations do just that.
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