In this lesson,
we will discuss qualitative risk analysis.
Qualitative risk analysis is one of the primary methods used
in risk management.
So let's dive into the concept of qualitative risk analysis
and its key components of the likelihood,
probability and impact of a given risk.
So what is qualitative risk analysis?
Qualitative risk analysis is a method
of assessing risk based on the potential impact
and likelihood of their occurrence.
It involves categorizing risk as high, medium, or low based
on the potential effect of the project objectives.
Now, this method is subjective and relies on the expertise
and experience of the project team and stakeholders,
and it also avoids the complexity
of the quantitative approach.
Now in the context of qualitative risk analysis,
likelihood and probability refer
to the chance of a particular risk occurring.
It is usually expressed qualitatively
as low, medium or high.
The likelihood of a risk is determined based
on past experience, statistical analysis
or expert judgment.
The impact on the other hand,
refers to the potential consequences
if the risk materializes.
The impact could be in terms of cost, time, quality
of other critical project objectives.
Like likelihood, impact also typically
is rated qualitatively as low, medium, or high.
The impact of a risk is assessed based
on the potential damage it could cause
to the project or business operation.
A low impact means that there is minor damage or loss
and essential functions are still operational.
A moderate or medium impact means there is
a significant damage or loss to assets.
A high impact means there is some major damage
and essential functions cannot be performed.
For example, in a software development project,
one potential risk could be the possibility
of a key team member leaving during the project.
The likelihood of this risk could be assessed
as medium risk considering industry turnover rates
and the project's duration.
The impact could be high as the departure
of a key team member could lead to delays,
increased cost, and potential quality issues.
In this scenario, the project manager
using qualitative risk analysis might prioritize the risk
and develop mitigation strategies.
These could include cross-training team members,
documenting process and knowledge, and implementing
a strong employee retention strategy.
Another example would be in the construction industry.
A potential risk in a skyscraper building project
could be delayed in the delivery of critical materials.
The likelihood of this risk could be assessed
as high considering potential supply chain issues,
vendor reliability, and external factors like weather
or transportation disruptions.
The impact will also be high as delays could lead
to increased costs, scheduled overruns,
and potential contractual issues.
In this case, a project manager might prioritize the risk
and develop mitigation strategies such
as securing multiple vendors for critical materials,
scheduling deliveries well in advance,
and maintaining a buffer stock of essential materials.
So remember, qualitative risk analysis is a method
of assessing risk based on their potential impact
and the likelihood of their occurrence.
Likelihood refers to the probability
or chance of a particular risk occurring.
It is usually expressed qualitatively
as low, medium or high.
And finally, impact.
Impact refers to potential consequences
if the risk materializes.
It could be in terms of cost, time, quality
or other critical project objectives.
Whatever industry you're in,
effective risk analysis is key to navigating uncertainties
and achieving project objectives.