A brief guide
Practical Project Risk Management
SERIES ARTICLE
By Martin Hopkinson
United Kingdom
Purpose
Classify risk probability and Impact estimates into bands in order to map risks to a Probability-Impact Matrix (PIM). (This guidance should be read in conjunction with the Probability-Impact Matrices guidance sheet (PMWJ, Feb 2023).
A Summary of the Technique
The probability and impact of each risk is estimated and matched to a pair of bands defined by the criteria table. The associated index numbers are then used to map each risk to the project PIM. Where impacts are assessed for more than one type of consequence e.g. as shown in the example below, the worst-case impact band is assessed as representing the overall impact.
Example of a Risk Classification Criteria Table
The table should be tailored to the size and objectives of the project for which it is used. For example, the table above might suitable for a project with a cost of around £10 million and duration of 2 years. The product impact criteria should be tailored to the project outputs.
Notes on the Design of Risk Classification Criteria Tables
- Impact classification criteria for different types of consequence e.g. time cost and product should be defined to reflect equivalent “pain” thresholds.
- It is often best to start by setting boundaries between Medium and High levels of impact, with High impacts being regarded as being unacceptable in normal circumstances.
- The boundary between High and Vey High impacts can be set at a level at which the viability of the project business case would be undermined should such an impact occur.
- Since 50% probability risks are those with the greatest level of uncertainty regarding their occurrence, it is good practice classify them as being of High or Very High probability.
- The index numbers should be representative of the relative values of the associated bands.
- As an exception, aligning the Very Low Probability index number with its band’s upper boundary helps to highlight the significance of Very Low Probability-Very High Impact risks.
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. (2023). Risk Classification Criteria Tables: A brief guide, Practical Project Risk Management series, PM World Journal, Vol. XII, Issue III, March. Available online at https://pmworldjournal.com/wp-content/uploads/2023/03/pmwj127-Mar2023-Hopkinson-Risk-Classification-Criteria-Tables-risk-management-series.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/
