Impact vs. Probability

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 . Risk management involves identifying possible risks, analyzing each risk potential in order to respond to and control the most significant threats and opportunities . The risk analysis is a two-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 .

Background

Risk management is a four-stage process, the first being identification of risks, second analysis (assessment), then the risk response and finally the risk monitoring . In risk analysis, risk can be defined as a function of impact and probability . During the analysis stage, the risk identified during the Risk Identification Process can be prioritized from the determined probability and impact of the risk event. Other factors, such as the response ttime frame and the tolerance should be taken into account when analyzing and categorizing the risks .

Impact Scale Example

Objective	Relative / Numerical Scale
	Very Low / 0.05	Low / 0.1	Moderate / 0.2	High / 0.4	Very High /0.8
Cost	Ble	Bla	Blu	Blo	Blæ
Time	Ble	Bla	Blu	Blo	Blæ
Scope	Ble	Bla	Blu	Blo	Blæ
Quality	Ble	Bla	Blu	Blo	Blæ

Impact

Impacts are often defined as the consequences, or effect, of a risk event on a project objectives. These impacts can be both beneficial or harmful to an enterprises activities (Curtis). The impact of risk events on different project objectives can be defined in both a qualitative and quantitative manner. These project objectives are cost, schedule, quality, scope, health, safety, etc. The Impact scale can vary, but the most common scale is the five-point scale. Typically, the impacts are described relative as very low, low, moderate, high and very high but often also with defined numerical scales. Dependent on the objective, the scales are given a description of what the impact entails (PMBOK). One risk event can affect more than one objective, so the impact of all the possible objective effected must be considered (Curtis).

Probability Scale Example

Likelihood		Description
Relative	Numerical
Very Low	0.1	Highly unlikely to occur.
Low	0.3	Will most likely not occur
Moderate	0.5	Possible to occur
High	0.7	Likely to occur
Very High	0.9	Highly likely to occur

Probability

Risk probability, or likelihood, is the possibility of a risk event occurring. The likelihood can be expressed in both a qualitative and quantitative manner. When discussing probability in a qualitative manner, terms such as frequent, possible, rare etc. When probability is referred to numerical values, such as percentages or frequency, it is being described in a quantitative manner (Curtis).