Question

When performing Risk Analysis as part of the task Analyse Risk (which is part of the Strategy Analysis knowledge area of the Business Analysis Body of Knowledge), we may develop a risk register as a table of entries for each identified risk.

For each identified risk we make a judgement about probability as being either low, medium or high. We also make a judgement about impact as being either low, medium, or high. These contribute to making a final judgement about the risk’s risk level as being either low, medium or high.

a) Explain the difference between probability of a risk and impact of a risk, and then describe what the difference between low and high judgement levels mean for these aspects of risk.

b) If a particular risk has been judged to have low probability but high impact, what might its final risk level be judged as?

c) If another particular risk has been judged to have high probability but low impact, what might its final risk level be judged as?

Answer 1

a) Explain the difference between probability of a risk and impact of a risk, and then describe what the difference between low and high judgement levels mean for these aspects of risk.

- In risk analysis, risk is defined as a function of probability and impact. The probability is a likelihood of an event occuring and the consequesces, to which the project is affected by an event, are the impacts of risk. By combining the probability and impact, the Level of Risk can be determined.

With the risk impact/probability chart, you map out each risk - and its position determines its priority. High-probility/High-Impact ricks are most critical/High level risks and you should put a great deal of effort into managing these. The low-probability/high-impact are judged as High Level risks and high-probability/low impact risks are next in priority they are judged as moderate level risks, though you may want to adopt diffecent strategies for each. Low-probability/low-impact risks can often be ignored as they are judged as low level risks.

b) If a particular risk has been judged to have low probability but high impact, what might its final risk level be judged as?

- These will be judged as high level risks. These are very unlikely to happen, however, you should do what to reduce the impact they will have if they occur, and you should have contigency plans in place just in case they do.

c) If another particular risk has been judged to have high probability but low impact, what might its final risk level be judged as?

- These are judged as medium level risk - if these things happen, you can cope with them and move on. However, you should try to reduce the likehood that they will occur.