Should we continue to use common-practice
risk analysis methods?
FEATURED PAPER
By Martin Hopkinson
United Kingdom
It has become widely accepted that the project risk management process should address opportunities as well as threats. This paper identifies a paradox that occurs when this approach is combined with a risk prioritisation process that uses either a Probability-Impact Matrix (PIM) or the assumption that Risk value = Probability x Impact. The paradox shows how the prioritisation order of risks may be reversed depending upon whether they are assessed as being threats or opportunities.
The paradox uses an approach to project risk analysis that is common to many organisations and businesses and supported by key professional guides. Some of the benefits of using such common practice are discussed. Against this, however, this paper identifies eight different assumptions that frame the threat-opportunity PIM technique and explores their implications to show why some of its weaknesses are often not understood. It shows that common practice project risk techniques can produce results that conflict with those produced by decision analysis or the analysis of risk based on measures of uncertainty. It also identifies weaknesses in approaches based on estimating risks relative to a baseline plan.
Previous authors have been critical of the use of PIMs for risk analysis. The discussion at the end of this paper therefore explores the implications of another paradox: the continued widespread use of a technique known to have numerous faults. The paper offers a pragmatic assessment of this issue. It concludes that the advantages of common practice should not be discarded, but that the limitations of PIMs should be understood and that intelligent and project-specific use of a range other techniques by skilled risk managers should be encouraged.
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How to cite this paper: Hopkinson, M. (2021). The Threat-Opportunity Risk Matrix Paradox – should we continue to use common-practice risk analysis methods? PM World Journal, Vol. X, Issue II, February. Available online at https://pmworldlibrary.net/wp-content/uploads/2021/02/pmwj102-Feb2021-Hopkinson-the-risk-opportunity-risk-matrix-paradox.pdf
About the Author
Martin Hopkinson
United Kingdom
Martin Hopkinson is the Director of Risk Management Capability Limited and has 30 years’ experience as a project manager, project risk management specialist and consultant. His experience has been gained across a wide variety of industries and engineering disciplines and includes multibillion-pound projects and programmes.
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 most recent book Net Present Value and Risk Modelling for Projects he brings 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.)
