The problem here is where the lines dividing the quadrants of the matrix lie. It's natural to want to turn this into a two-by-two matrix. The probability that a risk will occur is represented on one axis of the chart – and the impact of the risk, if it occurs, on the other. The chart allows you to rate potential risks on these two dimensions. However, the size of the impact varies in terms of cost and impact on health, human life, or some other critical factor. Impact – A risk, by its very nature, always has a negative impact.And it can't be exactly 0 percent, or it wouldn't be a risk.) (Note: It can't be exactly 100 percent, because then it would be a certainty, not a risk. The probability of it occurring can range anywhere from just above 0 percent to just below 100 percent. Probability – A risk is an event that "may" occur.
The Risk Impact/Probability Chart is based on the principle that a risk has two primary dimensions: The Risk Impact/Probability Chart provides a useful framework that helps you decide which risks need your attention.
If you do this effectively, you can focus the majority of your time and effort on the most important risks.
Does this mean that you should try to address each and every risk that your project might face? Probably not – in all but the most critical environments, this can be much too expensive, both in time and resources. Companies undertake increasingly complex and ambitious projects, and those projects must be executed successfully, in an uncertain and often risky environment.Īs a responsible manager, you need to be aware of these risks. Risk management is an important function in organizations today.
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