This tool and technique assesses the probability that the risk events you've identified will occur, and it determines the effect their impacts have on the project objectives, including time, scope, quality, and cost. Analyzing risks in this way allows you to determine which risks require the most aggressive management. When determining probabilities and impacts, you'll refer to the risk management plan element called "definitions of risk probability and impact."
Probability is the likelihood that an event will occur. The classic example is flipping a coin. There is a .50 probability of getting heads and a .50 probability of getting tails on the flip. Note that the probability that an event will occur plus the probability that the event will not occur always equals 1.0. In this coin-flipping example, you have a .50 chance that you'll get heads on the flip. Therefore, you have a .50 chance you will not get heads on the flip. The two responses added together equal 1.0. Probability is expressed as a number from 0.0— which means there is no probability of the event occurring—to 1.0—which means there is 100% certainty the risk will occur.
Determining risk probability can be difficult because it's most commonly accomplished using expert judgment. In non-PMP terms, this means you're guessing (or asking other experts to guess) at the probability a risk event will occur. Granted, you're basing your guess on past experiences with similar projects or risk events, but no two risk events (or projects) are ever the same. It's best to fully develop the criteria for determining probability and get as many experts involved as you can. Carefully weigh their responses to come up with the best probability values possible.
Impact is the amount of pain (or the amount of gain) the risk event poses to the project. The risk impact scale can be a relative scale (also known as an ordinal scale) that assigns values such as high-medium-low (or some combination of these) or a numeric scale known as a cardinal scale. Cardinal scale values are actual numeric values assigned to the risk impact. Cardinal scales are expressed as values from 0.0 to 1.0 and can be stated in equal (linear) or unequal (nonlinear) increments.
Table 6.2 shows a typical risk impact scale for cost, time, and quality objectives based on a high-high to low-low scale. You'll notice that each of the high-medium-low value combinations on this impact scale have been assigned a cardinal value. I'll use these in the next section when I talk about the probability and impact matrix.
When you're using a high-medium-low scale, it's important that your risk team understands what criteria was used to determine a high score versus a medium or low score and how these should be applied to the project objectives.
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What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.