Training Pack: Risk management of a Project
Learning objectives
 To understand what risk is
 The importance of risk management, the role of a project manager & the effect of
not managing risks on a project
 To understand an example of a risk management Tool, Probability and Impact
Matrix risk classification
Understanding what risk is
A risk “is a measure of the probability and the consequence of not achieving a defined
project goal.” (Kerzner, 2013:1) Risks are apart of every part of every day
organisational business and can arise from wherever and be positive and negative,
negligible to critical project success, which are especially apparent in project
management and something that cannot prevent but rather control and/or monitor
accordingly. Failure to manage the risks of a specific project will not be able to decide
on what correct course of action to take, when to take such action and whether any
further action is required.
The importance of risk management & the effect of not managing risks on a project
From which, it leads to the requirement for risk management when any project is
undertaken, regardless of size. Risk management includes activities to identify,
analyse and assess, and communicate, as well as control, risks. (Manners-Bell, 2014)
Project risk management is a complex subject that can be defined as the “systematic
process of managing an organization's risk exposures to achieve its objectives in a
manner consistent with public interest, human safety, environmental factors, and the
law. It consists of the planning, organizing, leading, coordinating, and controlling
activities undertaken with the intent of providing an efficient pre-loss plan that
minimizes the adverse impact of risk on the organization's resources, earnings, and
cash flows.” (Tusler, 1998)
Good project risk management can reap numerous benefits, which include:
 More effective/efficient use of resources
 Reducing waste & Waste of resources
 Increased speed of task(s) completion
 Reduced delays & less unforeseen issues
 Minimising threats & Seizing opportunities
 More probability of delivering a project on time, to budget & project scope
 Enhanced decision making
 Reassuring stakeholders
Probability and Impact Matrix
What is it?
A Probability and Impact Matrix is a qualitative project management tool used to aid
project managers classify risks of a project on the basis of the impact they may have
on the project and the probability of the risk occurring. It presents risks simply, easy
to understand tool that help to clarify what action if any a project manger should take.
The tool plots risks against the criteria of Impact and probability in a two dimensional
table of the type of decisions a project manger could/should take. (Cox and Huber
2008)
The Purpose of it?
The purpose of this tool is to classify risks and allow managers to identify what are
the most likely risks to occur on a project and the impact they could have on the
project, allowing the project manager to allocate their resources correctly and
appropriately to safeguard project success.
Diagram & Explanation of the Probability Impact Risk
Tool
The two criteria are defined as:
Probability: A risk of an event that may occur.
Business Impact: The potential effect of a risk.
The four categories of decisions on risk are:
Consider (Low Probability & High Business impact)
This type of risk has a low probability of occurring during a project but if this risk
presents itself, the effect on the project it could have, is important and could directly
affect the project and project success. Therefore this is where monitoring is important
to make ensure this risk does not occur.
Cover (High Probability & High Business impact)
This particular risk category is the most significant to a project as this type of risk has
a high probability of occurring during a project and can have the greatest influence on
project success. With this type of risk, is you would have to ensure the risk is always
controlled/monitored closely and throughout to protect the project and to have any
chance of the project being a successful.
Consider (High Probability & Low Business impact)
For this risk, it is classified as likely to occur when the project is undertaken but the
impact of the likely risk is low and therefore has little impact. It is important to
consider, acknowledge and monitor to ensure this does not happen frequently as these
if these risks collectively build and occur in conjunction with each other could have a
bigger impact on the project.
Ignore (Low Probability & Low Business impact)
This category of risk is of the lowest importance to project manager, even if this type
of risk transpired, the impact of the risk would be low on the project. Consequently, a
project manager may acknowledge the risk but take no action to manage or control it.
(Dumbravă and Maiorescu, 2013)
Benefits
Probability Impact Risk Tool Benefits & Limitations (Ramona,
Limitations
Simple, aesthetically pleasing & easy to use and communicate
tool
Breaks down risk into understandable, categories &
observable level of risk
Doesn’t require to quantify risks into numerical value
Do not need to be an expert to use this tool
Good to be able to show for audits or back checking projects
2011)
Identifies the risks but does not inform the project manager of
what decision to take
Very Subjective, open to interpretation and personal opinions
Different people can categorise risks into different categories
and therefore take diverse action(s)
Can not fully understand the consequence with out
acknowledging the potential financial impact a risk could have
Too broad and can not sub divide/between risks particularly
major risks
Conclusion

Risks are present in all projects; they can positive or negative as well as negligible
or critical to a project success or failure.

May require significant amount of resources to identify, control or monitor risks
but the benefits will out way any negatives of using such resources

Any project management must take a systematic approach to Risk management

The Probability Impact tool purely identifies where you should focus your
attention on risks (High Probability & High Business impact) and where you do
not need to (Low Probability & Low Business impact) on risks.

The Probability Impact tool can aid project principles (risk transfer, avoid,
eliminate, reduce and absorb).

When using qualitative tools, categorising risks is very subjective and therefore
project managers must ensure they have all/complete information available to
ensure decisions taken, are the most reliable at that time. (Ramona, 2011)

The Probability Impact tool should be performed in conjunction with other tools
and techniques to ensure project success and the impact of this tool is limited.
Learning Outcomes:
Using this training pack you should now be able to:
 What risk(s) are
 How important risks are to a project
 Why project managers need to manage risk throughout the project
 Use a project management tool to aid in risk management
Further links for more information:
Books:
Project Management By Dennis Lock
A Guide to the Project Management Body of Knowledge: PMBOK(R) Guide By
Project Management Institute
Websites:
http://www.pmi.org
http://www.apm.org.uk
https://www.prince2.com
Journal Articles/guides/publications:
Executive Guide to Project Management By Project management Institute
http://www.pmi.org/learning/publications.aspx
http://www.pmi.org/learning/academic-research.aspx
References:
Books
Kerzner, H R. (2013) Project Management: A Systems Approach to Planning,
Scheduling, and Controlling. 11th ed ., New Jersey: John Wiley & Sons
Manners-Bell J (2014) Supply chain risk: Understanding emerging threats to global
supply chains., London: Konan Page Limited
Websites
Tusler R (1998) Project Risk Management Principles (online) (Accessed on 1st
December 2014) http://www.netcomuk.co.uk/~rtusler/project/principl.html
Online sources (PDF’s)
Cox, T. Huber, B. (2008) Optimal Design of Qualitative Risk Matrices to Classify
Quantitative Risks (Online) (Accessed on 20th November 2014)
http://www.quantdec.com/misc/Optimizing%20Risk%20Matrices.pdf
Dumbravă , V. Maiorescu, T. (2013) Using Probability – Impact Matrix in Analysis
and Risk Assessment Projects. Bucharest: Journal of Knowledge Management,
Economics and Information Technology (Online) (Accessed on 20th November
2014) http://www.scientificpapers.org/wpcontent/files/07_Dumbrava_IacobUSING_PROBABILITY__IMPACT_MATRIX_IN__ANALYSIS_AND_RISK_AS
SESSMENT_PROJECTS.pdf
Ramona, S E. (2011) Advantages and Disadvantages of Quantitative and
Qualitative Information Risk Approaches. Bucharest: David Publishing (Online)
(Accessed on 20th November 2014)
http://www.davidpublishing.com/davidpublishing/Upfile/1/6/2012/201201067195774
5.pdf