A brief guide
Practical Project Risk Management
SERIES ARTICLE
By Martin Hopkinson
United Kingdom
Purpose
Address the question as to whether probability and impact estimates for risks should be made in any particular sequential order.
Common Practice
Professional guidance documents and training courses usually refer to making probability and impact estimates for risks (note the order of the words probability and impact). Similarly, risk tools usually present the probability field to the user in a location that precedes the impact field(s). This reflects common practice in which risks are conceptualised as being events for which probabilities can be estimated prior to identifying and estimating impacts.
This guidance sheet challenges common practice by suggesting many risk estimates would be improved if impacts were identified and estimated before making probability estimates.
Some risks may be a simple binary event with a single cause
Some risks may be associated with a simple binary “will it or won’t it happen” event with a well-bounded impact. In these cases, it is logical to start the estimation process by estimating the risk probability.
Example of a simple binary event risk: “If a (particular identified) component becomes obsolete, a more expensive alternative would have to be used in its place.”
However, risks of this simple nature are typically in a minority in a project risk register; the majority of risks being more complex and subject to more than one source of uncertainty. In theory, one might breakdown risks further to make them simpler. However proliferating the number of risks in this way tends to be counterproductive for reasons identified in The Source-orientated Parent-Child Risk Breakdown guidance sheet (July 2022).
More…
To read entire article, click here
Editor’s note: This series of articles is by Martin Hopkinson, author of the books “The Project Risk Maturity Model” and “Net Present Value and Risk Modelling for Projects” and contributing author for Association for Project Management (APM) guides such as Directing Change and Sponsoring Change. These articles are based on a set of short risk management guides previously available on his company website, now retired. For an Introduction and context for this series, click here. Learn more about Martin Hopkinson in his author profile below.
How to cite this paper: Hopkinson, M. (2024). Impact and Probability Estimating: A brief guide, Practical Project Risk Management series, PM World Journal, Vol. XIII, Issue VIII, August. Available online at https://pmworldlibrary.net/wp-content/uploads/2024/08/pmwj144-Aug2024-Hopkinson-Impact-and-Probability-Estimating-a-brief-guide.pdf
About the Author
Martin Hopkinson
United Kingdom
Martin Hopkinson, recently retired as the Director of Risk Management Capability Limited in the UK, and has 30 years’ experience as a project manager and project risk management consultant. His experience has been gained across a wide variety of industries and engineering disciplines and includes multibillion-pound projects and programmes. He was the lead author on Tools and Techniques for the Association for Project Management’s (APM) guide to risk management (The PRAM Guide) and led the group that produced the APM guide Prioritising Project Risks.
Martin’s first book, The Project Risk Maturity Model, concerns the risk management process. His contributions to Association for Project Management (APM) guides such as Directing Change and Sponsoring Change reflect his belief in the importance of project governance and business case development.
In his second book Net Present Value and Risk Modelling for Projects he brought these subjects together by showing how NPV and risk modelling techniques can be used to optimise projects and support project approval decisions. (To learn more about the book, click here.)
To view other works by Martin Hopkinson, visit his author showcase in the PM World Library at https://pmworldlibrary.net/authors/martin-hopkinson/
