Risk analysis is a process of determining the likelihood of the risk materializing and severity of a risk if it materialize.
It is very important in risk management. It helps in identifying treats and prioritizing controls. It is made up of two parts – The probability that the treat could materialize and the resultant negative consequences.
Types Of Risk Analysis
There are two (2) types of risk analysis – Qualitative and Quantitative risk analysis.
Qualitative Risk Analysis
This type of risk analysis is based on subjective principles using a pre-established rating scale. Here, risk can be graded to be either high, medium or low. qualitative risk analysis produces subjective results because it gathers data from participants in the risk analysis process based on their perceptions of the probability of a risk and the risk’s likely consequences.
Quantitative Risk Analysis
The quantitative risk analysis numerically analyzes the probability of each risk and its consequences. It assign risk value to the risk level.
For example: If the probability that an accident will occur is 90% and the estimated cost of the accident is 500,000.
The risk value = 0.9 x 500,000
= 450,000
This risk value will be used to compare with the cost of control. If the risk value is lower than the cost of control then the risk may be accepted, but if it’s higher than the control cost, then it will be better to control the risk.
Steps For Analyzing Risks
Risk can be analyzed following the steps below:
1. Identify the threat:
The first step is to identify what could go wrong. This threat could be human, procedural or natural. An incompetent worker is a threat, poor system of work is a threat, area susceptible to natural disaster also forms a threat. This physical threats combine with relevant information and legislation collectively helps in identifying the threat.
2. Analysis the threat (Risk Assessment):
This is used to determine the likelihood that the threat will materialize and the inherent consequence. A risk assessment is a vital element for health and safety management and its main objective is to determine the measures required to comply with statutory duty under the Health and Safety at Work Act 1974 and associated regulations by reducing the level of incidents/accidents.
It looks at what might cause harm and what is needed to avoid it, and assesses the effectiveness of any control measures in place. Extra control measures can then be used on the basis that they are “reasonably practicable”.
To successfully analyze the risk, you should be able to answer the following question;
- Who might be harmed and how
- What are you already doing to control the risks
- What further action do you need to take to control the risks
- Who needs to carry out the action
- When is the action needed
3. Develop risk management plan:
Based on the result of the risk identification and analysis, it is used to draw out control measures to either eliminate or mitigate the risk. That includes the budget, tools and approaches that will be used to perform risk identification, assessment, mitigation and monitoring activities.
A risk management plan usually includes:
- Methodology: Define the tools and approaches that will be used to perform risk management activities such as risk assessment, risk analysis and risk mitigation strategies.
- Risk Register: A risk register is a chart where you can document all the risk identification information of your project.
- Risk Breakdown Structure: It’s a chart that allows you to identify risk categories and the hierarchical structure of project risks.
- Risk Assessment Matrix: A risk assessment matrix allows you to analyze the likelihood and the impact of project risks so you can prioritize them.
- Risk Response Plan: A risk response plan is a project management document that explains the risk mitigation strategies that will be employed to manage your project risks.
- Roles and responsibilities: The risk management team members have responsibilities as risk owners. They need to monitor project risks and supervise their risk response actions.
- Budget: Have a section where you identify the funds required to perform your risk management activities.
- Timing: Include a section to define the schedule for the risk management activities.
4. Implement the risk management plan:
Ensure that the risk management plan is communicated to the necessary authorities and fully implemented. Implementing the risk management plan may take many forms, this depends on the business culture of the performing organization, history of previous efforts, available resources, number of individuals involved in the project, and other factors.
5. Monitor the risk:
Monitoring helps check if the identified risk has been properly controlled and also confirm the workability of the risk management plan. At this stage, the risk management plan can be reviewed if gaps are identified.
Further Reading
6 Methods of risk assessment you should know
Working at height risk assessment
What is fire risk assessment: How it is done
What Is The Difference Between Job Safety Analysis (JSA) And Risk Assessment