Which methods for risk analysis you should know

Get to know the most important risk analysis methods in order to identify and evaluate the risks for the project and to determine the optimal approach.

Every project is subject to risks. These are a part of business life and cannot be avoided in the long term. One of the most important tasks of a good project manager is to identify the risks with the help of risk analysis methods, to prepare for them as well as possible and to react quickly and safely if the worst comes to the worst.

Risk analysis is therefore the key word that defines good project management.

What is risk analysis in project management?

In project management, risk analysis means

• the identification of potential risks for the project,
• the assessment of the probability of occurrence and
• the prediction of possible consequences.
  
  
  

Once the risk analysis has been carried out, safety measures can be defined to reduce the probability of the risks or limit the expected damage.

Which methods of risk analysis are used in project management?

There are two main approaches to project management risk analysis - the qualitative and the quantitative approach. Both approaches are used and have their advantages for project management.

Qualitative risk analysis methods

Qualitative risk analysis deals with the probability of occurrence and the effects of an event. The costs, schedule and quality of the end product are taken into account.

The qualitative approach is simple and cost-effective. It enables you as a manager to concentrate on the risks with the highest priority.

Among the most important methods of qualitative risk analysis:

• The Delphi technique

  The method is risk brainstorming at expert level. Each of the experts contributes his or her own knowledge in order to assess the risks competently. The risks are then reviewed by all experts and prioritized.
  
  

• The SWIFT analysis (Structured What-If Technique)

  SWIFT involves the team and asks each team member to set up a "what if" scenario. SWIFT is often used for approved designs or technical plans.
  
  

• The fly analysis

  Fly analysis is a very practical technique of risk assessment. The considered risk event is projected in two directions. On the one hand, there are the causes that could lead to the event and on the other hand, there are the consequences that the event would trigger. Each cause and consequence is then considered separately in order to find solutions that reduce the probability of occurrence or mitigate the consequences.

Quantitative risk analysis methods

The quantitative methods for risk analysis deal with the numerical approach. These methods are usually used for risks that have been classified as significant in the qualitative risk analysis. The quantitative approach analyses the risks and classifies them numerically.

One of the most common quantitative risk analysis methods in project management:

• The Monte Carlo Simulation

  The Monte Carlo simulation is a mathematical method which gets its statement on the basis of a large number of similar random experiments. As a result of the simulation, the probability with which a certain event will occur is presented.

• The decision tree analysis

  With this method, all possible decisions are shown graphically. The visualization helps to understand the decision paths and to select the alternative that leads to the best result.

• The sensitivity analysis (or sensitivity analysis)

  This method is used to check how small changes to the initial data can affect the final result. The prerequisite for this type of analysis is that there must be a functional relationship between the initial and final values that can be described mathematically.

Conclusion

Knowing the risk analysis methods is of great importance in risk management. The right strategy and the appropriate approach determine how well your project meets the foreseeable challenges. It therefore determines the overall success of the project.