Key Approaches To Risk Assessment In Project Management Research Paper

Introduction

A valuable but often overlooked component of project management is risk assessment. Oftentimes, risks are assessed in an unstructured fashion (e.g. brainstorming) or are considered when the project is already at the execution stage. Such approach might be fatal for the project, since risks should be analyzed, identified and evaluated at the project preparation or project planning stage (Bartlett, 2004). The presence of an effective risk management strategy allows to detect project weaknesses and strengths, and to address weaknesses at the planning stage. Moreover, risk analysis can be used to detect external opportunities and threats. Basing on risk assessment results, project team should develop a plan for handling potential risks and account for unexpected events that might affect the project.

There are two key approaches to risk assessment: qualitative and quantitative (Bartlett, 2004). The purpose of this paper is to discuss both approaches, to explain the differences between quantitative and qualitative risk analysis, to describe the use cases for both approaches, and to determine what type of analysis should be used for IRTC customer service system project.

  1. Qualitative risk analysis

The process of risk assessment starts with creating a risk register, which is used both for qualitative and quantitative risk analysis. Thus, for each of these analysis types, it is reasonable to assume that project team has the list of project risks. The purpose of a qualitative risk analysis is to prioritize project risks using a specified rating scale (Ayyub, 2014). Risks might be prioritized using a composite score developed basing on risk likelihood and risk impact on the project’s objectives. Qualitative risk categorization might also use such factors as time frames and project risk tolerance (Ayyub, 2014).

In qualitative risk analysis, the estimates of risk impact and risk probability are done basing on expert opinion and judgment. Due to this, qualitative risk analysis is easier to conduct and is less costly. At the same time, raw estimates in qualitative risk analysis might be inaccurate. To overcome this issue, qualitative risk analysis is often followed by quantitative risk analysis. It is considered a good practice to select the most critical risks identified by qualitative analysis and then to perform quantitative analysis for these risks (Ayyub, 2014).

  1. Quantitative risk analysis

The goal of quantitative risk analysis is to analyze the numeric effect of the risk on the overall project objectives (Peltier, 2005). The outcome of quantitative risk analysis is also risk priority rating, but it is developed in a scientific manner, basing on mathematical model and forecasted risk impact. Typical methods of quantitative risk analysis include decision tree analysis, sensitivity analysis, the analysis of expected monetary value, computer modeling and simulation of risks (Peltier, 2005). Basing on quantitative risk analysis results, it is possible to adjust project costs and schedule in accordance with potential risks, and to evaluate project scope changes that might emerge due to risks.

Quantitative analysis provides an accurate and well-grounded estimate of risks, and is more reliable compared to qualitative analysis. At the same time, quantitative analysis requires a lot of time and resources. To arrive to precise quantitative risk estimates, it is necessary to have a lot of historical data, data from similar projects or data based on corporate experience.

  1. Use of quantitative and qualitative risk analysis

If it is necessary to choose between qualitative and quantitative risk analysis, then typical use cases would be the following. Qualitative risk analysis is more appropriate for novel projects where no historical data or previous project inputs are available, or for projects with a high degree of uncertainty. Qualitative risk analysis might be quite efficient in the cases when there are various kinds of risk associated with the project, and it is necessary to identify the most important risks that should be mitigated in the first place. Also, qualitative risk analysis might be preferable when there are people with decent expertise and experience who can effectively estimate risk impact and risk probability.

At the same time, there are projects that require quantitative risk assessment. If project risks might have a serious impact on the project and on external stakeholders (e.g. on the community), then it is necessary to use quantitative risk analysis. If there are data from previous projects, or effective risk metrics and data sources, then it would be efficient to use quantitative risk approach. However, in most cases project managers use hybrid approach to risk assessment: first qualitative risk analysis of all project risks is performed, and then for top-priority risks quantitative analysis is conducted.

  1. Type of analysis appropriate for IRTC customer service project

IRTC customer service project is related to the larger project, IRTC billing system update project. Along with the billing system update, the vendor offers a software add-on that allows integrating the existing customer service system with the customer service functions offered by the new billing system. At the same time, the billing system project is not implemented yet, and it is highly likely that it will require significant changes in IRTC’s business processes. Therefore, it might be not reasonable to retain the existing customer system, and it would be more efficient to adopt an external customer service system.

The decision on the functionality of the customer service system can be made after determining the required business process changes. Hence, there is currently a lot of uncertainty regarding the customer service project. Although this project would need quantitative estimates for deciding whether the vendor’s proposal should be accepted or not, currently there is too little information for quantitative analysis. It is therefore recommended for IRTC to use qualitative risk analysis for the customer service project. Later on, when the business process changes are identified, it might be useful to add quantitative risk analysis of top risks, but currently qualitative risk analysis is the most suitable approach.

 

References

Ayyub, B.M. (2014). Risk Analysis in Engineering and Economics. CRC Press.

Bartlett, J. (2004). Project Risk Analysis and Management Guide. APM Publishing Limited.

Peltier, T.R. (2005). Information Security Risk Analysis. CRC Press.

The terms offer and acceptance. (2016, May 17). Retrieved from

[Accessed: March 28, 2024]

"The terms offer and acceptance." freeessays.club, 17 May 2016.

[Accessed: March 28, 2024]

freeessays.club (2016) The terms offer and acceptance [Online].
Available at:

[Accessed: March 28, 2024]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: March 28, 2024]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: March 28, 2024]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: March 28, 2024]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: March 28, 2024]
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