The Guide to Qualitative Risk Analysis | Example | PDF

What is Risk Analysis?

When you finish identifying the risks that could affect your construction project, you need to determine which of these risk you will spend time & money on.

Risk analysis is the process of prioritizing risks based on the risk occurring probability and the impact it would have on your project.

The Difference Between Qualitative and Quantitative Risk Analysis

Project managers should always develop qualitative risk analysis because it’s quicker than the quantitative risk analysis. In some cases, quantitative risk analysis is not mandatory but merited.

There are two risk analysis techniques that you can use on any construction project :

  • Qualitative Risk Analysis
  • Quantitative Risk Analysis

The difference between them is that qualitative risk analysis uses a relative or descriptive scale to measure the probability of risk to occur whereas quantitative risk analysis uses a numerical scale.

How to Perform a Qualitative Risk Analysis

There are many ways to perform a qualitative risk analysis. These analysis techniques require varying degrees of discipline & time.

If the project is small, project managers may use what I call the KISS (Keep It Super Simple) Method. This one-dimensional technique involves rating risks as:

  • Very Low
  • Low
  • Medium
  • High
  • Very High

The common method is the probability/impact matrix. This 2D technique is used to rate probability &  impact.

The impact is the consequence or effect of the risk, normally associated with the project objectives such as cost, schedule, scope, and quality.

Rate probability & impact on a scale such as 1 to 5 where 5 is the highest probability and impact. Then we multiply to calculate our risk score (probability times x impact).

That is, risk can be rated as 4 probability & 3 impacts. So there will be risk score of 12.

The scale may be applied to both threats & opportunities. High-risk scores for threats indicate negative impacts such as adverse impacts on the schedule or budget. And high-risk scores for opportunities indicate positive impacts such as a reduction in the schedule or budget.

When Should You Perform Qualitative Risk Analysis?

Project managers should facilitate risk evaluation processes early in projects. Throughout the project, risk reviews can be conducted. Current risks are reviewed again & new risks are identified & analyzed.

Qualitative risk analysis will also help you decide if there are any particular forms or groups of threats that will need special consideration or any risk incidents that need to be handled in the near term.

Defining your rating scales is the most challenging aspect of performing a qualitative risk analysis. So after that has been achieved, you can use it for the remainder of the project to efficiently handle the risks of the project in a timely manner.

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See Also
Project Risk Management
Project Risk Management Plan