In the context of PRINCE2 7, Risk Probability and Impact are the two fundamental dimensions evaluated during the 'Assess' step of the risk management procedure. Their primary purpose is to distinguish major risks from minor ones, enabling the project management team to prioritize resources effectiv…In the context of PRINCE2 7, Risk Probability and Impact are the two fundamental dimensions evaluated during the 'Assess' step of the risk management procedure. Their primary purpose is to distinguish major risks from minor ones, enabling the project management team to prioritize resources effectively.
Probability refers to the estimated likelihood that a specific threat or opportunity will occur. In PRINCE2, this is not a certainty (which would be an issue) but a potentiality. Probability is usually measured against a defined scale documented in the Risk Management Approach, ranging from qualitative descriptors (e.g., Very High, Medium, Very Low) to quantitative percentages (e.g., 80% likelihood).
Impact describes the magnitude of the effect on the project's objectives if the risk materializes. In PRINCE2 7, impact is assessed against six performance targets: time, cost, quality, scope, benefits, and sustainability. For threats, the impact is negative (damage), whereas, for opportunities, the impact is positive (enhancement).
To determine the overall risk exposure, these two values are combined using a Probability Impact Grid (PIG). This matrix visualizes risks, placing those with high probability and high impact in a 'critical' zone requiring immediate action, while low-probability/low-impact risks may simply be monitored. Furthermore, PRINCE2 distinguishes between 'inherent' risk (the probability and impact before any response) and 'residual' risk (the remaining exposure after risk responses have been implemented). This comparison allows the Project Board to verify if the proposed responses reduce the risk to an acceptable level within the project's risk appetite.
Risk Probability and Impact Guide - PRINCE2 Practitioner v7
Introduction to Risk Probability and Impact In the PRINCE2 v7 context, assessing risks is a critical activity within the risk management procedure. Once a risk has been identified, it must be assessed to understand its significance. This assessment relies primarily on estimating two core dimensions: Probability (the likelihood of the risk arising) and Impact (the effect on the project objectives if the risk materializes).
Why is it Important? Resources for managing risk are finite. A project cannot actively manage every conceivable risk with the same level of effort. Assessing probability and impact allows the Project Manager and Project Board to: 1. Prioritize: Distinguish between critical risks that require immediate attention and minor risks that can be monitored. 2. Quantify Exposure: Calculate the expected monetary value of risks to inform the risk budget. 3. Decision Making: Determine if the overall risk exposure is worth the potential project benefits.
What are Probability and Impact? Probability is evaluated on a scale defined in the Risk Management Approach (e.g., Very High, High, Medium, Low, Very Low, or percentages like >80%). Impact represents the severity of the outcome on project performance targets (time, cost, quality, scope, benefits, and sustainability). Impact can be negative (threats) or positive (opportunities).
How it Works: The Assessment Process The assessment occurs during the 'Assess' step of the risk management procedure, specifically under the 'Estimate' activity.
1. Defining Scales: The project must use the specific grading scales recorded in the Risk Management Approach. This ensures consistency across all risks. For example, a 'High' impact might be defined as 'Cost increase > $10k'.
2. Probability Impact Grid (PIG): This is a matrix used to plot risks based on their assessment. It helps determine the severity of a risk and suggests appropriate management actions. Risks falling in the 'red' zone of a grid usually require urgent action.
3. Expected Monetary Value (EMV): For quantitative assessment, PRINCE2 often calculates the average financial impact. Formula:EMV = Probability (%) x Impact (Cost). For example, a risk with a 50% chance of occurring and a $10,000 impact has an EMV of $5,000.
4. Inherent vs. Residual Risk: PRINCE2 distinguishes between the risk level before response actions (Inherent/Gross) and the risk level remaining after response actions (Residual/Net).
Exam Tips: Answering Questions on Risk Probability and Impact When facing Practitioner-level questions regarding this topic, apply the following strategies:
1. Consult the Scenario Documents: Always look at the Risk Management Approach provided in the scenario (or the 'Additional Information'). It will define what constitutes 'High' or 'Low' probability and impact. You cannot answer correctly without knowing the specific project scales.
2. Watch for 'Net' vs. 'Gross': Questions may ask for the residual impact. Ensure you are calculating or selecting the value after the risk response has been applied, not the initial (inherent) value.
3. EMV Calculations: If a question asks for the value of a risk, do not simply select the full cost of the impact. You usually need to multiply the Cost by the Probability percentage. Example: A threat has a $20,000 impact and 10% probability. The risk value (EMV) is $2,000.
4. Impact on What? Remember that impact is measured against project objectives. If a question describes a delay, the impact is on Time. If it describes a specification reduction, the impact is on Quality or Scope. Match the risk to the correct performance target.
5. Proximity is Separate: While often assessed alongside Probability and Impact, Proximity (when the risk will happen) is a separate attribute. Do not confuse urgency (proximity) with severity (probability x impact).