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4 Risk Assessment Methods Using Impact and Probability.

All these methods, though beneficial for management, have their limitations and drawbacks. There are other, quantitative methods for analyzing risks, such as Sensitivity analysis, Expected Monetary Value analysis and Monte Carlo Simulations. The Impact and Probability Matrix is a simple and easily understood method of prioritizing risks and allocating resources. These are often referred to as Impact and Probability Matrix and can take both qualitative and numerical values. A commonly used method for risk assessment is preparing descriptive scales to rank risk in terms of probability and impact. There are various aspects of the project that can be affected by a risk event, such as cost, safety, operation, quality, etc. By combining the probability and impact, the Level of Risk can be determined. The probability is the likelihood of an event occurring and the consequences, to which extent the project is affected by an event, are the impacts of risk. In risk analysis, risk is traditionally defined as a function of probability and impact.

Initially, qualitative methods are used to examine, categorize and determine the main risk events identified, which are relevant for a more detailed quantitative assessment. The risk analysis is a two-stage assessment process. Risk management involves identifying possible risks and analyzing their potential in order to respond to and control the projects most significant threats and opportunities. Therefore, Risk Management is an important part of any organization as proper management increases the likelihood for the success of a project. All projects are unique and thus the associated risk varies between projects. Risks are events caused by uncertainties, which can have a positive or negative effect on the project objectives. Looking at impact versus probability is common in order to categorize and prioritize risks as some risks may have a severe impact on projects objectives but only happen on rare occasions, while other have a moderate impact but occur more frequently.Īll organizations activities involve risk. Impact and probability are the two main components of Risk analysis.