The risk matrix is one of the best-known elements in risk management because it is simple and gives a quick overview of the risk situation of your project. However, many users are unaware of the special characteristics of the risk matrix and therefore do not take full advantage of it. Perhaps you will find one or the other point in this article that you do not yet know. If not, then certainly in Part 2: You probably do not know these characteristics of the risk matrix!
The Risk Matrix and Its Characteristics
The risk matrix is used in the risk management process after you have identified the risks and assessed them.quantitatively (and possibly, qualitatively). Each risk is entered into the matrix, according to its probability and impact. The position on the matrix corresponds to the relative importance or risk level of the risk. In the top right-hand corner of the red fields are the dangerous risks, and in the bottom left-hand corner of the white fields are the less-dangerous risks.
If you use the risk matrix as management information, then it is best to limit yourself within the matrix to the 5 to 8 largest risks (unless all are in the red or yellow fields). More risks would be too confusing. The figure on the left shows the ACTUAL position of the risk, without measures. On the right-hand side, you will find the risk matrix, with the change in the risk value. Depending on the purpose of the risk matrix, it can represent the following:
- ACTUAL position of the risk
- ACTUAL position of the risk, and the planned TARGET position of the risk after action planning
- The change in risk from the past up to today’s actual position
The Risk/Opportunity Matrix
Unfortunately, one often thinks only of what could jeopardize the project; what opportunities the project does have are often forgotten. Opportunities are identified and evaluated using the same procedures as risks. However, opportunities are forgotten when it comes to presenting them in a risk matrix. This is because there is only one matrix for assessing the risks. Since opportunities—like risks—are evaluated according to probability and impact, it makes sense to present both in a common chart.
The figure shows a combined risk/opportunity matrix. On the left side, the risks are assessed, and on the right side, the opportunities are assessed. The horizontal axis shows the impact on the project, which increases from the outside to the inside. The vertical axis shows the probability , which increases from the bottom to the top. In the figure, you can see the most important risks and opportunities in the middle of the matrix are in the upper half—the so-called “Arrow of Attention”. The size of this triangle depends on how risk-averse the organization in question is, and how much effort should be put into risk management. This means the larger the triangle, the less risk-averse you are, but you also want to miss as few opportunities as possible. The aim is to take measures for risks and opportunities in the “Arrow of Attention” so that the risks do not occur, and the opportunities can be exploited.
A Risk Matrix with 3×3 Fields is Not Ideal
When I managed my first projects many years ago, I was also confronted with the risk matrix, and it had 3×3 fields.
According to the extensive experience of risk management expert, Rita Mulcahy, many companies make the big mistake of using a three-part scale in risk analysis with the terms “small”, “medium”, and “high”. Why is she against this practice? I will explain this below.
If you have only three choices, how do you distinguish 10 risks, all of which have a high probability and a high impact? Even for 30 risks, a three-part scale offers too small of a range to sort the risks by rating. With a larger range, it is easier and faster to evaluate the risks and place them in an evaluation matrix. At the same time, you get a more differentiated picture, even if it is only a subjective assessment. A wider range will also reduce uncertainties, such as if someone wants to assign the risk to the rating “High”, and their colleague wants to assign it to “Medium”.
Rating Scales of 1-10 Offer More Flexibility in the Assessment of Risks
Rita Mulcahy recommends using scales with values from 1-10 for the probability and the impact. I agree with her. However, the five-part scales used by the PMBOK® already offer much more flexibility than the usual three-part scales. Anyone who now claims this is a matter of apparent accuracy does not understand its meaning. For the sake of simplicity, I use five-part scales in my books.
Now, you have learned the most important basics about the risk matrix. Deepen your knowledge in Part 2 of this article: You probably do not know these characteristics of the risk matrix!
I hope you have learned something new in this article about project risk management. Do you have any additions or do you disagree? I look forward to your comments.
Would you like to know more about project risk management? My book on Project Risk Management take you an important step forward!
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