What's a Risk Matrix and How Can I Use It on My Projects?
When you start a new project, it seems counterintuitive to begin by asking what could go wrong. Unfortunately, every project comes with its inherent risks, and ironically, planning for failures and challenges can be the key to its success.
Software breaches, non-compliance, delays, and budget issues can sink an entire company unless you’ve factored in the possible risks from the outset.
That’s why many project managers include a risk assessment matrix (also known as a RAM risk matrix) in their project planning.
Mapping your risks can help mitigate them
What is a Risk Matrix?
A Risk Assessment Matrix can be defined as a visual depiction of the risks that may affect a project to minimize or mitigate potential problems and optimize performance.
The Benefit of Using a Risk Assessment Matrix
Creating a risk assessment matrix has numerous benefits, including:
the ability to prioritize risks according to the level of severity/impact;
creating a risk management process or protocols to follow;
keeps risks in full view of the whole team;
the ability to find the threat with minimal effort;
recording and auditing risk information;
neutralizing the fall-out when something goes wrong; and
instilling confidence in clients that you’ve thought through every single detail.
Who is Responsible for the Risk Assessment?
Risk management shouldn’t be the task of a single person but should form part of the broader organizational culture. Assign specific risk management protocols to team members and equip everyone to neutralize hazards through strict procedures.
Besides improving your response rates, this approach avoids unproductive finger-pointing and panicking should you experience a crisis event during your project.
Creating a Risk Assessment Matrix
To create an efficient risk assessment matrix, you have to follow four simple steps.
Step 1: Identify Potential Hazards For the Project
Start by assessing your risk landscape. Write down a checklist or risk register of any potential risks, ranging from the trivial to the disastrous.
Speak to clients or our teams to include threats that have affected past projects, including operational, financial, reputational, technical, or human risks. Be as exhaustive as possible.
Conducting a Risk Audit
If necessary, you may want to conduct a risk audit. A risk audit measures the risks of various projects with recommendations that you can implement to improve your risk management response.
It examines the exhaustiveness of risks identified by internal experts, links the project risks with organizational risks, and interrogates the effectiveness of the company's contingency plans. Independent technical experts in risk management generally perform risk audits.
You may want to consult outside help to assess your risk landscape and readiness
Risks Commonly Experienced by Project Managers
Risks vary per industry and project, but a few risks are considered relatively standard across the board.
Scope Risks
Scope risks are prevalent for new entrepreneurs and involve any risks that may jeopardize your project’s objectives, timelines, and deliverables.
Cost Risks
Staying within budget is critical for businesses. You can mitigate this risk through thorough planning and expense tracking. Keep an eye on finances from start to finish.
Time Risks
Many companies struggled with deadlines in 2020, with projects curtailed and sites shut down due to the pandemic or lockdowns. It’s essential to plan for eventualities and make sure that teams use any downtime to get a headstart on the next project.
Technology Risks
Tech risks have been highlighted in the media as any data breach will result in considerable downtime, especially for SMBs. Ensure that you are up to date with the latest software and that your team is observing cybersecurity protocols.
Resource Risks
Your team may be scraping by with minimal resources (like staff), but it won’t last. If you need extra hands on deck, it should be addressed even temporarily before tackling your next big project.
Procurement Risks
Are you reliant on other businesses and vendors to meet your deadline? Always do your due diligence and investigate your new vendors properly because committing.
Step 2: Conducting the Risk Analysis and Placing Risks in the Matrix
Next, dig into each risk more thoroughly. Analyze security protocols, financial data, forecasts, and so on to gain better insight. Remember, you can’t mitigate or prevent a risk until you fully understand it.
Once you’ve analyzed each risk, you can input it into a risk assessment matrix.
Draw a grid with the Probability of Occurrence at the Y-axis and the Impact of Occurrence on the Y-axis.
Step 3: Determining Risk Impact
Once you’ve created the graph, you can divide the risks into:
Critical Risks
Critical risks that demand the immediate attention of the person in charge. This should be color-coded as Red in the assessment. These risks constitute anything that requires a prompt response and quick action. Anything that may fail to complete a deadline or deliver an MVP is critical.
Major Risks
Major Risks that are high risk but with less impact than a Critical Risk. These are indicated as Orange.
Moderate Risks
Moderate risks that are medium-level but that you can circumvent, indicated by the color Yellow. They are not a high priority and won’t likely result in a bottleneck during the project. This classification is helpful for project managers to work around time constraints or perfect the quality of the deliverables.
Minor Risks
Minor risks that are trivial and dealing with them can be postponed after all other problems have been resolved, indicated in Green on your chart.
Ultimately you want to weigh the probability of the risk occurring against the impact the risk will have if it does happen. This classification will help your team flag issues with the necessary urgency when they do crop up.
Step 4: Prioritize the Risks
The Probability can be broken down as Very Likely, Likely, Unlikely, and Very Unlikely.
It can also be expressed in a percentage:
Very Likely: There is a 76-100% chance that this hazard will occur.
Likely: There is a 51 – 75% chance that this hazard will occur.
Unlikely: There is a 26 – 50% chance that this hazard will occur.
Very Unlikely: There exists a 0-25% chance that this hazard will occur.
You’ll likely end up with a table that resembles the example below, but you can visualize the data any way you like.
Risk Assessment Matrix
SEVERITY OF EVENT
PROBABILITY
Critical Event
Major Event
Moderate Event
Minor Event
Very Likely
Likely
Unlikely
Very Unlikely
It’s a good idea to include action items or escalation actions inside the grid so that teams know when and how to bring a hazard to your attention.
Closing Thoughts
Risk assessments aren’t one-off events. You should continually evaluate and reassess your risk assessment and make the necessary changes and updates to the matrix.
Risks will evolve and crop up over time. As a project manager or business owner, aim to foster a proactive risk management culture in your organization. Take time to re-evaluate your risk landscape as new threats and challenges emerge. These hazards may never pop up, but it’s best to be prepared if they do.