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Qualitative Risk Analysis

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Introduction

Qualitative Risk Analysis

Qualitative risk analysis is the process of performing a qualitative analysis of identified risks. This process is intended to prioritize risks according to their potential effect on business objectives.  Qualitative risk analysis is one way of determining the importance of addressing specific risks and guides risk response measures. The time-criticality of risk-related actions may magnify the importance of a risk. An evaluation of the quality of the available information also helps modify the assessment of the risk. Qualitative risk Analysis requires that the probability and impact of the risks be estimated using qualitative analysis methods and tools. Using these tools helps correct biases that are often present in a business plan.  Qualitative risk analysis should be revisited during the business’s life cycle to stay current with changes in business risks.  This process can lead to further analysis in quantitative risk analysis or directly to risk response planning .

  • Inputs to Qualitative Risk Analysis
  • Risk management plan.
  • Identified risks.Risks discovered during the risk identification process are evaluated along with their potential impacts on the business.
  • Business status. The uncertainty of a risk often depends on the business’s progress through its life cycle. Early in the business many risks have not surfaced, the design for the business is immature and changes can occur, making it likely that more risks will be discovered.
  • Business type. Businesses of a common or recurrent type tend to have less risk. Businesses using state-of-the-art  or first-of-a-kind technology  or highly complex businesses tend to have more risk.
  • Data precision. Precision describes the extent to which a risk is known and understood. It measures the extent of data available as well as the reliability of data. The source of the data that was used to identify the risk must be evaluated.
  • Scales of probability and impact.  These scales are to be used in assessing the two key dimensions of risk.
  • Tools and Techniques for qualitative Risk Analysis
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Middle

Risk probability is the likelihood that a risk will occur.Risk impact is the effect on business objectives if the risk occurs.

These two dimensions of risk are applied to specific risks, not to the overall business.  Analysis of risks using probability and impact helps identify those risks that should be managed aggressively.

  • Probability / impact risk rating matrix. A matrix may be constructed that assigns risk ratings (low, moderate and high) to risks or conditions based on combining probability and impact scales. Risks with high probability and high impact are likely to require further analysis, including quantification, and aggressive risk management.  The risk rating is accomplished using a matrix and risk scales for each risk or condition.
A risk’s probability scale naturally falls between 0.0 (no probability) and 1.0 (certainty). Assessing risk probability may be difficult because expert judgment is used, often without benefit of historical data. A general scale (e.g. .1/.3/.5/.7/.9), representing probabilities from very unlikely to almost certain, could be used.

The risk’s impact scale reflects the severity of its impact on the business objective.

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Conclusion

  • Outputs from Qualitative Risk Analysis
  • Overall risk ranking for the business.Riskranking may indicate the overall risk position of a business relative to other businesses by comparing risk scores.  It can be used to assign personnel or other resources to businesses with different risk rankings, to make a benefit-cost analysis decision about the business, or to support a recommendation for business cancellation.
  • List of prioritized risks. Risks and conditions may be prioritized by their group category (high, moderate, and low) at a detailed level, perhaps at the lowest WBS level. Risks may also be grouped by those that require an immediate response and those that can be handled at a later date. Cost, schedule, functionality and quality risks may be assessed separately with different ratings. Significant risks should have a description of the basis for the assessed probability and impact.
  • List of risks for additional analysis and management. Risks classified as high or moderate would be prime candidates for more analysis, including quantitative risk analysis, and for risk management action.

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