Risk Analysis is a fundamental component of the Risk practice within PRINCE2 7, serving as the process through which identified risks are examined to understand their potential impact on project objectives. This analysis phase occurs after risks have been identified and before response strategies a…Risk Analysis is a fundamental component of the Risk practice within PRINCE2 7, serving as the process through which identified risks are examined to understand their potential impact on project objectives. This analysis phase occurs after risks have been identified and before response strategies are developed.
The primary purpose of risk analysis is to evaluate each risk in terms of two key dimensions: probability and impact. Probability refers to the likelihood that a risk event will occur, while impact measures the potential effect on the project if the risk materialises. These assessments can be conducted using qualitative methods, such as rating scales from very low to very high, or quantitative methods involving numerical calculations and statistical analysis.
During risk analysis, project teams also consider proximity, which indicates when a risk might occur. Understanding timing helps prioritise responses and allocate resources effectively. Some risks may be imminent while others might not materialise until later project stages.
The expected value calculation combines probability and impact to produce a single metric that aids comparison between different risks. This enables project managers to focus attention on risks that pose the greatest threat or opportunity to project success.
Risk analysis should examine both threats, which are negative risks that could harm the project, and opportunities, which are positive risks that could benefit the project. Both require careful evaluation to ensure appropriate responses are planned.
The outcomes of risk analysis feed into the Risk Register, where each risk is documented with its assessed probability, impact, proximity, and expected value. This information supports decision-making about which risks warrant active management and which can be accepted or monitored.
Effective risk analysis requires collaboration between team members with relevant expertise and should be revisited throughout the project as circumstances change and new information becomes available, ensuring the project maintains an accurate understanding of its risk exposure.
Risk Analysis in PRINCE2 Foundation v7
Why Risk Analysis is Important
Risk Analysis is a critical component of successful project management because it enables project teams to make informed decisions about how to handle potential threats and opportunities. By understanding the nature and magnitude of risks, project managers can allocate resources effectively, prioritize their responses, and communicate clearly with stakeholders about what might affect the project's success.
What is Risk Analysis?
Risk Analysis is the process of examining identified risks to understand their characteristics, causes, and potential consequences. In PRINCE2 v7, Risk Analysis involves two main approaches:
Qualitative Analysis: This involves assessing risks based on their probability of occurring and the impact they would have if they did occur. Risks are typically categorized as high, medium, or low using these criteria.
Quantitative Analysis: This involves numerical assessment of risks, often using techniques such as expected monetary value calculations, Monte Carlo simulations, or decision tree analysis. This approach provides more precise data for decision-making.
How Risk Analysis Works in PRINCE2
Risk Analysis is part of the Risk Management procedure and follows the Identify step. The process works as follows:
1. Estimate Probability: Determine how likely each risk is to occur. This is often expressed as a percentage or using scales such as very low, low, medium, high, or very high.
2. Estimate Impact: Assess what effect the risk would have on project objectives if it materialized. Consider impacts on time, cost, quality, scope, and benefits.
3. Calculate Risk Exposure: Combine probability and impact to determine the overall risk exposure. This helps prioritize which risks require the most attention.
4. Consider Proximity: Evaluate when the risk might occur. Risks that are imminent may need more urgent attention than those further in the future.
5. Document in Risk Register: Record all analysis findings in the Risk Register for ongoing monitoring and review.
Key Concepts to Remember
- Risk Analysis applies to both threats (negative risks) and opportunities (positive risks) - The Risk Register is the primary management product for recording risk analysis - Risk Analysis informs the Plan step, where response actions are developed - The Project Board uses risk analysis information to make decisions about project viability - Risk tolerances set by corporate or programme management guide how risks should be escalated
Exam Tips: Answering Questions on Risk Analysis
1. Know the difference between Identify and Analyse: Identify is about finding risks; Analyse is about understanding their probability and impact.
2. Remember the two types of analysis: Be prepared to distinguish between qualitative (descriptive assessment) and quantitative (numerical assessment) approaches.
3. Understand probability and impact: Questions often test whether you know that risk exposure is determined by combining these two factors.
4. Link Analysis to the Risk Register: The Risk Register is where analysis results are documented. Know this connection well.
5. Consider the full risk procedure: Risk Analysis sits between Identify and Plan in the procedure. Understanding this sequence helps with scenario-based questions.
6. Watch for proximity questions: Proximity refers to when a risk might occur and is an important factor in prioritizing risk responses.
7. Read questions carefully: Look for keywords like 'probability,' 'impact,' 'exposure,' and 'assessment' which indicate the question relates to Risk Analysis.
8. Apply to both threats and opportunities: Remember that analysis techniques apply equally to negative and positive risks.