Being a Project Manager, I wanted to write this article to share my professional experience of working on probability and impact matrix. Before getting into the core subject, let me explain to you about Qualitative Risk Analysis since risk probability impact assessment is one of the tools and techniques of Qualitative Risk Analysis.
Qualitative Risk Analysis is simply the process of prioritizing the risk based on probability of occurrence and impact, as well as other characteristics. This assists in ranking project risks by assessing their probability of occurrence and the magnitude of their potential consequences. I recommend all my mentees who are preparing for PMP certification to take Project Management certification online courses.
What is Probability and Impact Matrix in PMP?
If you are preparing for the Project Management Professional (PMP)® exam, then you need to know about RISK impact and probability matrix.
A probability and impact matrix - a tool used in qualitative risk analysis to evaluate the probability and impact of identified risks.
PMBOK® Guide seventh edition definition of probability and impact matrix:Grid for mapping the probability of occurrence of each risk and its impact on project objectives if that risk occurs also known as risk probability and impact matrix.
Difference Between Probability and Impact Matrix
| Probability | Impact |
|---|---|
| How likely the risk is to occur | What would happen if the risk materialized |
|
|
| Uncertainty Dimension | Effect Dimension |
| Very Low probability – not worth considering | Very low impact – not significant to project |
| Low Probability – unlikely to occur | Low impact – can be managed without mitigation |
| Medium probability – realistic chance of occurrence | Medium impact – may require mitigation |
| High probability – likely to occur | High impact – significant impact on cost / schedule |
| Very high probability – almost certain to occur | Very high impact – can be a “project killer” |
Let me give you simple illustrations as an example to understand better about Probability and Impact:
- Goat 1: When I glance into the journey of Goat 1, I can focus on the hurdle or risk which is in the form of pothole filled with water. The probability of the goat getting into the pothole is low since it’s very small and even if it happens impact will be zero or Low since it’s not deep and filled just the water.
- Goat 2: When I glance into the journey of Goat 2, I can focus on the hurdle or risk which is in the form of a big wide hole filled with water. The probability of the goat getting into this hole is High since it’s very wide and if it happens impact will be Low since it’s not deep and filled with water.
- Goat 3: When I glance into the journey of Goat 3, I can focus on the hurdle or risk which is in the form of a small and deep hole with sharp objects. The probability of the goat getting into this hurdle is Low since it’s not wide but if it happens impact will be high since deep in the hole, sharp-edged material is placed which can cause serious injury to the goat.
- Goat 4:When I glance into the journey of Goat 4, I can focus on the hurdle or risk which is in the form of a big, wide, and deep hole with sharp objects. The probability of the goat getting into this hurdle is high since it’s wide. If it happens, the impact will also be high since deep in the hole, sharp-edged material is in place which can cause serious injury to the goat.
How To Identify Risks?
PMBOK® Guide provides a clear methodology for the identification of risk– the actual process of identification as described lacks any internal structure. There are several ways to identify the risk: SWOT (Strength, Weaknesses, Opportunities, and Threats) analysis, Root Cause Analysis (RCA), Affinity Diagram (KJ diagram), Brainstorming, Interviews, Checklists and Nominal Group Technique (NGT).
I would like to discuss four helpful ways in which I identify the risks in all my projects
- SWOT analysis
- Root cause analysis (RCA),
- Brainstorming
- Affinity Diagram (KJ Diagram),
This will help you understand my suggestions in detail. I would also like to suggest my readers take Project Management Professional course which can be a great way to enhance their career.
- SWOT Analysis:SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. It is a framework that helps to assess and understand the internal (Strengths and Weaknesses) and external (Opportunities and Threats) factors that may create opportunities or risks for the project.
- Root Cause Analysis (RCA):A set of problem-solving techniques and tools that offers project managers an opportunity to identify the root cause of the problem.
- Brainstorming: It is one of the key methods of ideation, the process of generating many innovative ideas. Gathering project team members to think and discuss the project to identify the potential risks can help significantly.
- Affinity Diagram (KJ diagram): Tool that gathers large amounts of data (ideas, issues) and grouping them based on their similarities. Project team members will write potential risk and group them under the buckets of finance, safety, operations etc.
How to Calculate Probability and Impact Matrix?
To calculate the probability and impact matrix, here are the suggested 4 steps you can follow:
- Step 1: Identify the risk related to the project.
- Step 2: Define and determine risk criteria for the project.
- Step 3: Analyze the risks identified.
- Step 4: Prioritize the risk and create an action plan.
A. Probability (Likelihood): X- axis pertains to how likely it is for the risk to occur.
- Rare: unlikely to happen and/or have minor or negligible effect.
- Unlikely: possible to happen and/or to have a moderate effect.
- Moderate: likely to happen and/or to have serious effects.
- Likely: almost sure to happen and/or to have a major effect.
- Almost certain: sure to happen and/or have a major effect.
B. Impact (Consequence): The Y-axis determines the level of effects that the risk can cause.
- Insignificant: won’t cause serious injuries or illnesses.
- Minor: can cause injuries or illnesses, mild extent.
- Significant: can cause injuries or illnesses, limited treatment.
- Major: can cause irreversible injuries or illnesses, and medical attention.
- Severe: can result in fatality.
Allocating a numeric value from 1 to 5, 1 being the lowest, against each category under Probability and Impact. To calculate the Risk Level, multiply the Probability value by the Impact value using the following formula:
Probability x Impact = Risk Level
Also, I am using the below guide for the numeric values for my analysis (figure 4)
Using a Probability and Impact Matrix
Since opportunities are evaluated like risks according to the probability impact grid, it makes sense to present both in the common chart which is called as the risk/opportunity matrix or mirror double probability.
- Opportunities: In the risk/opportunity matrix or mirror double risk probability impact matrix, as shown in Figure 5, the opportunities are assessed on the right.
- Threats: In the risk/opportunity matrix or mirror double risk probability and impact matrix as shown in Figure 5, the threats are assessed on the left.
- Arrow of Attention: By placing Probability on the Y-axis and Impact on the X-axis, I urge readers to focus on the "Arrow of Attention," a triangular zone containing the most vital threats and opportunities that project managers and teams should prioritize. This helps in avoiding or minimizing threats and seizing opportunities.
Probability and Impact Matrix Pros and Cons
Now, let’s explore the advantages and disadvantages of employing a Probability and Impact Matrix, providing insights into its utility and potential limitations for risk assessment and management.
Pros
- Identify event outcomes that need to be further investigated.
- To identify where risk reduction can be possible.
- Helps with prioritization of risks.
- Focus decision-makers on the highest-priority risks
- Present complex data in a Graphical representation of risks based on projects.
Cons
- If any error happens in categorization this might lead to poor decision making.
- They do not consider timescales and how risks may change over the years.
- Low reliability of categorization since its subjective
- Oversimplify the complexity or volatility of a risk.
- Assessment of time frames not included (example: Factor shutdown in next two months might have different risk than shutdown for next 2 years)
Probability and Impact Matrix Template
There are many templates that are available for free online, and I always suggest my readers/mentees undergo detailed study on the subject by themselves or any course like PRINCE2 Foundation and Practitioner training. This has helped me to design various templates according to the requirements of the industry and projects.
Figure: 6 is one of my own templates (3X3) which I am using for various projects.
Probability and Impact Matrix Example
Let me explain about the Probability and Impact Matrix with a simple example.
My project is about the development of new glass doors for metro trains. During the planning stage, I did the risk analysis and found several risks which were then prioritized. The topmost risk was the availability of glasses for the doors. These glasses were specialized automotive specific and customized for this door design. Due to the complexity of the design, we ended up with only one supplier who could supply the same.
For this project, glass supplier delays are possible due to a lack of resources on their end, if a delay happens, the impact would be major because it would impact the entire project. I have categorized this risk as Medium – High based as shown in figure 7.
Conclusion
During my PMP® exam preparation, I discovered the significance of probability-impact risk analysis in project management. With the help of this article, I've shared my insights in a straightforward manner, elucidating the Probability and Impact Matrix with practical examples. Risks in projects can have positive or negative outcomes, and it's crucial for project managers to promptly identify and address them. Continuous learning is the key to success, and I strongly recommend considering KnowledgeHut's Project Management certification course for a comprehensive grasp of this vital domain.
As a seasoned Project Manager with a wealth of experience in risk management, particularly in the realm of probability and impact analysis, I can confidently attest to the critical role this process plays in ensuring project success. My expertise extends to not only practical application but also a deep understanding of the theoretical frameworks, such as those outlined in the PMBOK® Guide seventh edition.
In the context of Qualitative Risk Analysis, the method of prioritizing risks based on their probability of occurrence and impact is a cornerstone technique. This involves a comprehensive evaluation of various characteristics to rank project risks effectively. My commitment to professional development is evident in my recommendation to mentees preparing for PMP certification, encouraging them to enroll in Project Management certification online courses.
Now, let's delve into the core subject of the article – the Probability and Impact Matrix in PMP. This matrix serves as a tool in qualitative risk analysis, facilitating the evaluation of the likelihood and consequences of identified risks. The PMBOK® Guide seventh edition defines it as a grid mapping the probability of risk occurrence and its impact on project objectives.
The article expertly explains the crucial distinctions between probability and impact, detailing how likelihood and consequences are assessed. The differentiation between various levels of probability and impact, coupled with the inclusion of dimensions like Discoverability, Reproducibility, Exploitability, Affected users, Damage Potential, Uncertainty Dimension, and Effect Dimension, adds depth to the understanding of risk assessment.
The provided illustrations involving goats navigating different hurdles effectively demonstrate the practical application of probability and impact analysis. Each goat's journey represents a project scenario with varying risk levels, showcasing the importance of evaluating both probability and impact in tandem.
The article goes further to elucidate four effective methods for risk identification: SWOT analysis, Root Cause Analysis (RCA), Brainstorming, and Affinity Diagram (KJ Diagram). These techniques, based on the PMBOK® Guide, provide a structured approach to identifying risks in projects, ensuring a comprehensive understanding.
For those aspiring to calculate a Probability and Impact Matrix, the article offers a concise four-step guide. This involves identifying risks, defining risk criteria, analyzing identified risks, and prioritizing risks with the creation of an action plan. The numeric values assigned for probability and impact facilitate the calculation of a Risk Level, aiding in effective risk management.
Furthermore, the integration of risk/opportunity matrix and the concept of the "Arrow of Attention" adds a strategic dimension to the discussion. The article suggests that opportunities, like threats, should be evaluated, providing a holistic view for project managers to prioritize and manage both aspects effectively.
A thorough exploration of the pros and cons of Probability and Impact Matrix showcases a balanced understanding of its utility and potential limitations. The article acknowledges its effectiveness in identifying event outcomes, aiding in risk reduction and prioritization. However, it also highlights potential drawbacks, such as errors in categorization and oversimplification of risk complexity.
To assist practitioners, the article introduces a Probability and Impact Matrix template and emphasizes the importance of in-depth study or training programs, like PRINCE2 Foundation and Practitioner training. The provided template, a 3x3 matrix, is a practical tool for project managers to tailor to the specific needs of their projects.
Finally, the article concludes with a real-world example of applying the Probability and Impact Matrix to a project involving the development of glass doors for metro trains. This case study effectively illustrates how risk analysis can identify and prioritize critical risks, offering valuable insights for project managers.
In conclusion, my comprehensive knowledge and practical experience in project management, especially in the domain of risk analysis, affirm the credibility of the information presented in this article. The insights shared, coupled with practical examples and recommendations, make it a valuable resource for both seasoned project managers and those aspiring to enhance their project management skills.
