What is Risk Analysis? What are the Different Techniques of Risk Analysis?

What is Risk Analysis?

Risk analysis is the process of evaluating identified risks and opportunities to discover their magnitude, whether they merit a response, and how responses should be prioritized in light of limited resources.
It also helps to define preventive measures to reduce the probability of occurrence and identify countermeasures to successfully deal with these constraints.

There are 2 Techniques in Risk Analysis

Quantitative risk analysis is the process of calculating risk based on data gathered. The goal of quantitative risk analysis is to further specify how much will the impact of the risk cost the business. This is achieved by using what’s already known to predict or estimate an outcome.

For data to be suitable for quantitative risk analysis, it has to have been studied for a long period or to have been observed in multiple situations. For example, in the past five projects, equipment type A has broken down after 7 hours of use. With this information, it can be assumed that if a project requires workers to use equipment type A for 8 hours, then it has a 100% chance of breaking down.

Qualitative risk analysis is the process of rating or scoring risk based on a person’s perception of the severity and likelihood of its consequences. The goal of qualitative risk analysis is to come up with a shortlist of risks that need to be prioritized above others.

Qualitative risk analysis is best described as a project manager’s first line of defense against risks. It helps weed out potential detractors to the project’s success, including risks that are unlikely to cause any severe harm to the project. By targeting the most dangerous risks first, project managers can allocate their time and resources more effectively.

They allow for the definition of consequences of incidents that occurred in a quantitative way, which facilitates the realization of costs and benefits analysis during the selection of protections
They give a more accurate image of risk.
To determine the likelihood of accomplishing a particular project objective. Quantify the risk revelation of the project, and determine the scope of cost and schedule possibility that may be required
Risk is organized by their financial effect, possessions by their financial value. The outcomes can be articulated in detailed management terminology. The safety level is better determined grounded on the three basics: accessibility, veracity, and privacy. A cost analysis can be executed for choosing the best-suited procedures. Data precision progresses as the organization increases the experience.

It allows for putting in order risks according to priority.
It allows for the determination of areas of greater risk in a short time and without bigger expenditures.
Analysis is relatively easy and cheap.
It has an easy presentation. The results of the qualitative risk analysis can be presented graphically using a risk assessment matrix. A project manager can use a risk assessment matrix to communicate risk management strategy to team members or senior management.
It has an easy presentation. The results of the qualitative risk analysis can be presented graphically using a risk assessment matrix. A project manager can use a risk assessment matrix to communicate risk management strategy to team members or senior management.
There is easy prioritization. Since the qualitative risk analysis already classifies risks according to their likelihood and impact, it becomes easy to determine risks that an organization should focus on: the ones falling into the highest likelihood and impact categories.
There’s no need to determine the frequency. The qualitative risk analysis results don’t depend on the risk occurrence frequency, so the team performing the analysis can save time by not predicting the frequency and the exact timing of each risk.
There’s no need to quantify the impact on costs and schedule. Since qualitative risk analysis doesn’t quantify the risk impact on project costs and schedule, time is saved during the analysis.

Results of analysis may not be precise and confusing
It must be enriched in the qualitative description.
Quantitative measures depend on the scope and accuracy of the defined measurement scale.
Analysis conducted with application of those methods is generally more expensive, demanding greater experience and advanced tools.

It does not allow for the determination of probabilities and results using numerical measures
Costs-benefits analysis is more difficult during the selection of protections.
Achieved results have general character, approximate etc.