Which of the following are used by a risk assessment matrix to prioritize identified risk?

Acquisition Risk Management Risk Prioritization
The risk rating is based on the probability of impact and the level of impact (manual mapping approach):

Reference: Franklin, C. E., Lt. Gen (USAF) Commander ESC, January Memorandum for ESC Program Managers, ESC/CC, Risk Management, Department of the Air Force, Headquarters ESC (AFMC) Hanscom Air Force Base, MA.

Operational Risk Management Risk Prioritization
Risk is the probability and severity of loss from exposure to the hazard. The assessment step is the application of quantitative or qualitative measures to determine the level of risk associated with a specific hazard. This process defines the probability and severity of an undesirable event that could result from the hazard.

Reference: Pocket Guide to Operational Risk Management

Other Priority Definitions
A weighted average model is used to compute an overall score for each identified risk. This score provides a most-to-least critical rank order of the risks. Formally, this scoring model originates from the concept of linear utility.

Definition: The Impact Score of an identified risk is the average of the three equivalent numerical values associated with the risk impact ratings selected for the three impact areas Cost, Schedule, and Technical Performance.

Definition: The Risk Score (equation 1) of an identified risk is the weighted average of the equivalent numerical values associated with the risk's Probability, Impact Score, and Timeframe.

(Equation 1)

In equation 1, U1 is the risk's Probability with importance weight w1, U2 is the Impact Score with importance weight w2, and U3 is the equivalent numerical value for the risk's Timeframe with importance weight w3. Furthermore, the weights sum to unity; that is, w1 + w2 + w3 = 1.

Definition: If the impact of a risk to a project on Cost, Schedule, Technical Performance is such that it would cause project termination, then it is rated Severe and the Impact Score defaults to its maximum numerical value of one.

Definition: Risk Score is defined to be equal to one if the Impact Score is equal to one (refer to equation 1).

Definition: The overall Rating for Impact and Risk Priority is defined as follows:

• The overall Rating of an identified project risk is rated Severe (in the project's RAW) if the Score for that risk is equal to one.
• The overall Rating of an identified project risk is rated High (in the project's RAW) if the Score for that risk is greater than or equal to 0.65 and less than one.
• The overall Rating of an identified project risk is rated Moderate (in the project's RAW) if the Score for that risk is greater than or equal to 0.35 and less than 0.65.
• The overall Rating of an identified project risk is rated Low (in the project's RAW) if the Score for that risk falls between 0 and 0.35.

The table below summarizes the results of the scoring and risk ranking process described above.

Risk Score is used to rank a risk's priority relative to the other identified risks. The risk with the highest risk score is ranked first in priority, the risk with the next highest risk score is ranked second in priority and so forth. The closer the risk score is to one the higher the priority; the closer a risk score is to zero the lesser the priority.

Reference: Garvey, Paul R., "Implementing a Risk Management Process for a Large Scale Information System Upgrade - A Case Study", INCOSE Insight, May 2001, p.7-8.

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Rarely projects get launched without running into some kind of problem. Living in a world where this does not happen would be like a dream. However, in today’s world market, trends change rapidly, so the risk cannot be avoided.

If you are launching your business, you should consider doing a risk assessment matrix. Even when you are doing a new task, one of the questions that you should ask is, “What could go wrong?”. In the modern digital world, a lot of online tools exist that help and automate building the forecasts and planning your new business – such as IdeaBuddy, for example – but in many cases, it’s still good to do this manually.

A risk assessment matrix is a tool that was developed to analyze risk. Yes, we can use data to analyze risks. By doing so, any organization can detect and prioritize different risks. They do this by estimating the probability of occurrence.

Learn below more about this topic in this article created by our team at TMS.

What is a risk assessment matrix?

A risk matrix is sometimes also called the Probability Matrix, or Impact Matrix. This is an effective tool that can help in risk evaluation by focusing on the probability of potential risks.

A risk assessment matrix can help you calculate project risk quickly. It does this by identifying the things that could go wrong and weighting the potential damage. This makes it easy to prioritize problems. Action will be needed in order to keep a project on course, and safe as well.

Project managers should think about potential risks in order to avoid risk events from happening. While managing uncertainty sounds challenging, there are more and more calculating risk tools available today that can help and require little effort on your part.  Simply create your own risk assessment matrix and use it as many times as you need.

Here are some benefits that you can take advantage of when making your risk matrix:

• You will be able to prioritize the risks with the level of severity.
• You get a simple process for the management of risk.
• It helps you in finding the potential risk with minimal effort.
• Information is recorded and audited.
• It demonstrates the organization’s ability to managing risk.
• It helps in neutralizing any possible consequences.

How to make a risk assessment matrix

If you want to do your own risk assessment matrix, you can start by defining the scope of work. Depending on what you are trying to improve, you need to identify different areas of risk. Choose your objective and make sure it is clear as possible.

Step 1: Identify Hazards

In order to start, you want to go for as many risks as you can. The idea behind this is to get different views. A brainstorming session could be of help. The list that you get is going to be the foundation of the risk assessment matrix.

Connected with your scope, the list needs to belong and detailed. It can include anything from theft, to burns, and even pollution. It is really important that you think at all potential risks for any new project you are working on.

You can also think about what happens when you identify them. But not to worry, we will discuss that soon enough.

Step 2: Risk Analysis

The risk analysis is not something to take lightly. There are certain steps that you need to follow in order to do effective management of risks. When an organization has pitched all the right risks, the next step is going to carefully evaluate them.

A risk assessment matrix focuses a lot of chances and consequences as the main focus. But depending on the organization, we are talking about you can encounter terms like “vulnerability” or “speed of onset”.

Step 3: Determining Risk Impact

Any risk assessment matrix means that you will need to check probabilities and consequences of risk events that might happen. The results of such assessments are used to make a top of risks in order to find the most important ones, as well as less critical ones.

In a risk chart, you can see exactly how both high-risk and low-risk factors are shown. The impact of a successful attack can be split into two types: “technical impact” and the “business impact”.

Step 4: Prioritize the risks

When you will see a risk assessment matrix, you will be able to compare different levels of risk. It can include any internal rules or policies.

One thing that should be noted is that the risk assessment process can be an ongoing evolution. A matrix needs to change at the same time with changes that appear in your company. If it is done one timer per year, emerging risks could go unnoticed or even undetected.

How to use the risk assessment matrix?

When the risk assessment process is complete, you can start to take data into the matrix. Any risk assessment matrix uses two axes, one that measures the likelihood, and the other one measures the consequence result.

Likelihood: the probability of a risk

Depending on the likelihood of the occurrence of the risk, the risk can be classified under these categories:

– A risk that is almost guaranteed to show up during the execution of the project. Any risk that is more than 85% likely to cause problems is going to fall under this category.

– Risks that have a 60%-80% chance to occur can be grouped as likely.

– Risks that have a 50/50 probability of occurrence are named occasional.

– Seldom are the risks that have a low probability of occurrence.

– Unlikely are the risks that have almost no probability of occurring.

Consequences: the severity of the impact or the extent of damage caused by the risk

The consequences of risk can be ranked into five categories. These are based on how severe the damage can get.

• Risks that can cause the negligible amount of damage are called insignificant.
• Risks that have a small potential for negative effects are called minor.
• Risks that do not impose a great threat but are yet sizable damage can be classified as moderate.
• Risks that have substantial negative effects and are going to impact in a serious way the success of a project is called critically.
• Risks that come from human error or the environment. Other causes can be procedural deficiencies or major system loss. This will require the closing on the operation and are called catastrophic.

Knowing what elements a risk assessment matrix has is important. This is going to help you and your organization to manage risk effectively and reduce workplace incidents.

The risk assessment matrix is a document that has to be updated and maintained with curiosity. Risks are evolving and the matrix should do the same. There are certain events that are going to trigger the need for a refresh. One could be like establishing an enterprise risk management program.

Ending thoughts on risk assessment matrix

In conclusion, a risk assessment matrix is only going to do good things for you and your organization. Whether this is the first time you are doing it, or you are experienced, you can check the information above and already have some ideas regarding what you need to do. Do not forget that without it you can potentially create a lot of havoc in your company, causing a loss in productivity and time. You will want to study it carefully and see if you can do it independently.

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