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In this lesson,

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we will discuss qualitative risk analysis.

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Qualitative risk analysis is one of the primary methods used

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in risk management.

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So let's dive into the concept of qualitative risk analysis

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and its key components of the likelihood,

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probability and impact of a given risk.

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So what is qualitative risk analysis?

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Qualitative risk analysis is a method

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of assessing risk based on the potential impact

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and likelihood of their occurrence.

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It involves categorizing risk as high, medium, or low based

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on the potential effect of the project objectives.

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Now, this method is subjective and relies on the expertise

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and experience of the project team and stakeholders,

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and it also avoids the complexity

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of the quantitative approach.

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Now in the context of qualitative risk analysis,

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likelihood and probability refer

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to the chance of a particular risk occurring.

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It is usually expressed qualitatively

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as low, medium or high.

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The likelihood of a risk is determined based

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on past experience, statistical analysis

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or expert judgment.

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The impact on the other hand,

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refers to the potential consequences

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if the risk materializes.

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The impact could be in terms of cost, time, quality

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of other critical project objectives.

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Like likelihood, impact also typically

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is rated qualitatively as low, medium, or high.

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The impact of a risk is assessed based

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on the potential damage it could cause

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to the project or business operation.

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A low impact means that there is minor damage or loss

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and essential functions are still operational.

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A moderate or medium impact means there is

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a significant damage or loss to assets.

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A high impact means there is some major damage

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and essential functions cannot be performed.

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For example, in a software development project,

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one potential risk could be the possibility

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of a key team member leaving during the project.

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The likelihood of this risk could be assessed

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as medium risk considering industry turnover rates

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and the project's duration.

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The impact could be high as the departure

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of a key team member could lead to delays,

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increased cost, and potential quality issues.

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In this scenario, the project manager

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using qualitative risk analysis might prioritize the risk

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and develop mitigation strategies.

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These could include cross-training team members,

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documenting process and knowledge, and implementing

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a strong employee retention strategy.

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Another example would be in the construction industry.

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A potential risk in a skyscraper building project

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could be delayed in the delivery of critical materials.

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The likelihood of this risk could be assessed

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as high considering potential supply chain issues,

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vendor reliability, and external factors like weather

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or transportation disruptions.

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The impact will also be high as delays could lead

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to increased costs, scheduled overruns,

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and potential contractual issues.

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In this case, a project manager might prioritize the risk

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and develop mitigation strategies such

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as securing multiple vendors for critical materials,

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scheduling deliveries well in advance,

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and maintaining a buffer stock of essential materials.

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So remember, qualitative risk analysis is a method

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of assessing risk based on their potential impact

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and the likelihood of their occurrence.

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Likelihood refers to the probability

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or chance of a particular risk occurring.

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It is usually expressed qualitatively

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as low, medium or high.

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And finally, impact.

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Impact refers to potential consequences

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if the risk materializes.

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It could be in terms of cost, time, quality

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or other critical project objectives.

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Whatever industry you're in,

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effective risk analysis is key to navigating uncertainties

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and achieving project objectives.