Risk management is one of the critical functions in our organization today and indeed it is taken very seriously to ensure companies can take on more complex and ambitious projects and at the same time execute them successfully in the uncertain environment.
In project management, the Probability and Impact matrix (PIM) is commonly used to assess risks. It helps project managers analyze and prioritize risks based on their probability (likelihood) and impact.
The objective of project risk management is to increase the probability and/or impact of positive risks and to decrease the probability and/or impact of negative risks, in order to optimize the chances of project success
The formula used in the PIM is: Risk Level = Probability × Impact
- Probability: The probability represents the likelihood or chance of a risk event occurring, and it is typically measured on a scale from 0 to 1 or as a percentage. (In simple words, an event which is impossible has a probability of 0 and an event which is certain has a probability of 1)
- Impact: The impact refers to the potential consequences or effects of the risk event on the project objectives, and it is often measured on a scale from 0 to 1 or using qualitative descriptors such as low, medium, and high.
By multiplying the probability and impact values, the formula provides a risk level score that indicates the overall significance or severity of a risk. Higher risk level scores indicate more critical risks that require immediate attention and mitigation.
It’s important to note that the specific scales and ranges for probability and impact can vary depending on the organization, project, or industry. It’s recommended to define and establish a consistent scale within your project or organization to ensure accurate and meaningful risk assessments using the PIM.
Please note this is a simplified example, real-world risk assessments may involve more factors, considerations, and tailored risk matrices based on the industry, context, and regulations. Please do talk to your Risk Managers or PMO to learn more on your company specific risk assessment processes and documentation methodologies.
Risk Assessment Calculator
Summary View
| Hazard | Likelihood | Severity | Risk Level |
|---|
Step-by-step instructions on how to use the Risk Assessment Calculator:
- You will see a form with fields for “Hazard,” “Likelihood,” and “Severity.”
- Enter the details of the hazard in the “Hazard” field.
- For example, let’s say the hazard is “Slippery Floors.”
- Select the likelihood of the hazard from the drop-down menu in the “Likelihood” field. Choose one of the options: “Low,” “Medium,” or “High.” For example, if you assess the likelihood of slipping on the floor as “Medium,” select that option.
- Similarly, select the severity of the hazard from the drop-down menu in the “Severity” field. Choose one of the options: “Low,” “Medium,” or “High.” For example, if you assess the severity of slipping and getting minor injuries as “Medium,” select that option.
- Once you have filled in all the necessary details, click the “Calculate Risk” button.
- The risk level based on the likelihood and severity values will be calculated using the risk matrix formula.
- The calculated risk level will be displayed in the “Risk Level” column in the summary table below the form. The hazard, likelihood, severity, and risk level will be added as a new row in the table.
- You can continue assessing and adding hazards by repeating steps 3 to 8. Fill in the details of each hazard, click “Calculate Risk,” and the results will be added to the summary table.
- To start a new assessment, you can clear the form inputs by refreshing the page or clicking the browser’s refresh button.
Example: Let’s go through an example to illustrate the usage of the Risk Assessment Calculator.
- Hazard: Slippery Floors
- Likelihood: Medium
- Severity: High
After entering these details and clicking the “Calculate Risk” button, the calculator will determine the risk level based on the risk matrix formula. In this case, the risk level will be calculated as “High.”
The summary table will be updated with a new row showing the hazard as “Slippery Floors,” likelihood as “Medium,” severity as “High,” and risk level as “High.”
You can repeat the process for other hazards, assess their likelihood and severity, and calculate the corresponding risk levels. The summary table will provide an overview of the assessed hazards and their risk levels.
Remember to adjust the risk matrix and its criteria according to your specific needs and requirements for more accurate risk assessments.
Note: This is a simplified example, and real-world risk assessments may involve more factors, considerations, and tailored risk matrices based on the industry, context, and regulations.
I hope this tool will give you some ideas how to calculate the probability and impact for your projects or teams you manage.
Additionally, feel free to explore other tools and resources available to further enhance your project management experience. Project management calculators – Project Insights (projinsights.com)
All the very best!
Once again, thank you so much for taking the time to read this article. For more content on Project and Operations Management and best practices, I encourage you to explore my other articles here at Project Insights – for best practices and real project experience (www.projinsights.com)
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