After risks have been identified and enumerated, the
next step is risk analysis. Through
risk analysis, we transform the risks that were identified as decision-making information.
In turn, each risk is considered and a judgment made about the probability and
the seriousness of the risk. For each risk, the team must do the following:
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Assess the probability
of a loss occurring. Some risks are very likely to occur. Others are very
unlikely. Establish and utilize a scale that reflects the perceived likelihood
of a risk, such as: very improbable, improbable, probable, or frequent.
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Assess the impact
of the loss if the loss were to occur. Delineate the consequences of the
risk, and estimate the impact of the risk on the project and the product such
as 1=negligible, 2=marginal, 3=critical, or 4=catastrophic.
The analyzed risks are organized into a risk table
as below:
After the risks have been
organized into a risk table, the team prioritizes the risks by ranking them. The team sorts the list so that the high probability, high impact risks percolate
to the top of the table and the low-probability, low impact risks drop to the
bottom. If numerical values were given
for probability and impact, the risk exposure can be calculated. Risk exposure
is calculated as follows:
Risk
Exposure (RE) = P × C
where
P = probability of occurrence for risk and C is the impact of
the loss to the product should the risk occur.
After the risks are
prioritized, the team, led by the project manager, defines a cut offline so
that only the risks above the line are given further attention.
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