Impact vs. Probability

Abstract

All organizations activities involve risk. Risks are events caused by uncertainties, which can have a positive or negative effect on the activities objectives. As all projects are unique, the associated risk varies between projects. Therefore, Risk Management is an important part of any organizations as proper management increases the success of a project (book1). [Risk Management] involves identifying possible risks, analyzing each risk potential in order to respond to and control the most significant threats and opportunities (book 2).

The risk analysis is a to stage assessment process. Initially, qualitative methods are used to examine the identified risk to categorizing and determine the main risk events which are relevant for a quantitative assessment. In risk analysis, risk is traditionally defined as a function of probability and impact. The risk probability is likelihood of an event occurring and the consequences, the extent to which the project is affected by the risk event, are the impacts of risk. By combining the probability and impact, the Level of Risk can be determined. There are various aspects of the project that can be impacted by a risk event. These are aspects such as cost, safety, operational, quality, etc. A commonly used and popular method of risk assessment is preparing descriptive scales to rank risk in terms of probability and impact. These are often referred to as Impact/Probability Matrix or Risk maps and can take both qualitative and quantitative values. This method of risk assessment has its limitations and drawback. However, it is a simple and easy to understand method of prioritizing risks and allocating resources (SEG).