PRINCE2 Risk Techniques

 

Estimating risks can be done in a variety of ways, and here are some of them:

 

The Probability impact grid. This grid contains ranking values that may be used to rank threats and opportunities qualitatively. The probability scales are measures of probability derived from percentages, and the impact scales are selected to reflect the level of impact on project objectives. 

 

The values within the grid cells are the combination of a particular probability and impact, and are determined by multiplying the probability by the impact. A probability impact grid can be used to provide an assessment of the severity of a risk and enable risks to be ranked so that management time and effort can be prioritized. 

 

For example, the Project Board may set their risk tolerance at any risk with a value of greater than 0.2, and they may require a proactive response for any risk with a value of greater than 0.05

 

Pareto analysis This technique ranks or orders risks once they have been assessed to determine the order in which they should be addressed. Pareto analysis can be used to focus management effort on those risks that have the potential to have the greatest impact on the project objectives

 

 

Probability trees. These are graphical representations of possible events resulting from given circumstances. A probability tree can be used to predict an outcome in a qualitative way when historical data is used to populate the likelihood of each circumstance happening. Probability trees assist in communicating to project participants or decision makers the likelihood of the different possible outcomes to a set of circumstances

 

Expected value This technique quantifies risk by combining the cost of the risk impact with the probability of the risk occurring. Expected value is useful when a tangible measure of risk is required to enable risks to be prioritized. For example, if the cost of a risk was £160,000 and its likelihood of occurrence was estimated at 25%, then the expected value would be £40,000

 

There are many ways of identifying possible risks within a project. It is important to come up with as many as possible, even if they are discounted later. Remember, any risk not identified may cause your project to fail! Here are some examples:

 

Risk prompt lists These are publicly available lists that categorize risks into types or areas and are normally relevant to a wide range of projects. Risk prompt lists are useful aids to help stimulate thinking about sources of risk in the widest context.

 

Brainstorming This enables group thinking, which can be more productive than individual thinking. However, it is important to avoid criticism during the brainstorm as this can stop people contributing. In addition to identifying risks, brainstorming can also be used to understand the stakeholders’ views of the risks identified

 

Risk breakdown structure This is a hierarchical decomposition of the project environment assembled to illustrate potential sources of risk. Each descending level represents an increasingly detailed definition of sources of risk to the project. 

 

The structure acts as a prompt and an aid to support the project management team in thinking through the potential sources of risk to the objectives. 

 

Risk checklists. These are in-house lists of risks that have either been identified or have occurred on previous similar projects. Risk checklists are useful aids to ensure that risks identified on previous projects are not overlooked.

 

Review lessons. Risks are driven by uncertainty, so one of the most effective ways to reduce uncertainty is to review similar previous projects to see what threats and opportunities affected them. 

 

There are numerous ways to break down risk and it may be useful to do more than one list. For example, a risk breakdown structure could be broken down by PESTLE (political, economical, sociological, technological, legal/legislative, environmental), product breakdown structure, stage, benefits/objectives etc. These structures will help to identify appropriate risk owners to develop responses.

 

There are many ways to evaluate risk, and here are some of the most often used techniques:

 

Risk models Take, for example, Monte Carlo analysis. This model enables simulation of ’what if’ scenarios using random numbers to determine whether each risk within a given range occurs or not. The simulations are repeatedly run to predict the ’average’ level of risk to the project’s time or cost. The scenarios can also be used to model extreme cases (e.g. if nearly all the risks occur)

 

Expected monetary value This technique takes the expected values of a number of risks and sums them to arrive at an overall value. It provides a quick and easy assessment of a group of risks to understand

their combined effect.

 

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