Table of Contents for Risk Identification Tools & Technique-
- Introduction to Project Risks
- Risk Identification Lifecycle
- Tool 1: Risk Register
- Tool 2: SWOT Analysis
- Tool 3: Assumption Analysis
- Tool 4: Sensitivity Analysis
- Tool 5: Fishbone Diagram
Introduction to Project Risks
Projects operate in a complex environment that is created by multiple stakeholders. Each stakeholder has its’ own expectations from the project, interests, abilities, authority, limitations, changes, ability to contribute positively to the project progress or inhibit the project progress. The multiple combinations of such factors create uncertainties in the project that are called project risks.
The project risks can be categorized into the following heads-
- Statutory Law, Nature & Environment related Risks
- Legal Risks
- Financial Risks
- Project Related Risks
- Safety related Risks
The process of risk identification, risk analysis, risk response planning, risk response implementation and risk response monitoring is called risk management. You can read about it in detail, in my other article on construction risk management here.
This article is dedicated to the risk identification tools and techniques that I have used for my projects. I have found these tools & techniques to be very helpful. Throughout, the article I will also describe how you can implement these tools for your project too.
Project Risk Identification Lifecycle
Before moving to the tools, let us quickly go through the risk identification lifecycle (Piney, C. 2003). This step will help us to decide what tool is suitable for which stage of the risk identification. The six phases of the risk identification lifecycle go into the following order-
- Template Specification: Statement of Risk
- Basic Identification: Likelihood of occurrence and why?
- Detailed Identification: Comprehensive understanding of project uncertainties
- External Cross-Check: Consistency with benefit from global experience
- Internal Cross-Check: Link to scope definition: guarantees consistency between risk management and rest of project management.
- Statement Finalization: Full definition of risk information to define all characteristic of each specified risk
Tool 1: Risk Register
A risk register is a document used to record all the identified risks. It also contains various information about the risks such as nature, description, severity, probability of occurrence, cause and impact.
It can be further utilized to plan for the risk treatment. The treatment method is described against each risk along with the responsibility and timeline.
The risk register is a commonly used tool worldwide. The simplicity of the recording method makes it a popular tool too. However, the effectiveness of the risk register lies in the correct documentation of risk and timely implementation of the planned risk treatment.
Here is a snapshot of the qualitative risk register that I had recently updated.
You can use your organization-specific format or the similar format as shown above. Make sure your format satisfy the stakeholders’ requests and they can understand the risks their probability, impact, and treatment.
Tool 2: SWOT Analysis
The SWOT analysis is the acronym for strength, weakness, opportunity and threats. This approach is a popular tool for the basic identification of risks.
The strengths and weaknesses correspond to the internal capabilities of the organization to cope with the risks. The indicate the probability of success and failure of the project due to the organization’s capability.
The opportunity and threats are external factors that give birth to the risks.
For example, a successful real estate developer is trying to venture into the solar power project for the first time. The strengths are sustained cashflows, weakness is inexperience in the solar projects, the opportunity is the booming solar sector and threat is the competition from experienced firms that specialize in solar projects.
Here is a snapshot of the SWOT analysis I did for my project stage during the pandemic. Similarly, you can apply this concept to your project for project risks identification.
Tool 3: Assumption Analysis
Projects are planned on some assumptions as the availability & clarity of all the data is insufficient at an early stage. The assumptions can be related to manpower mobilization, market-rate forecast for material, a quantity of work, soil conditions, statutory requirements, project finance & cashflows etc. Over the project execution period, the deviation from the assumptions gives rise to risks.
Assumption analysis is a technique to evaluate the potential change in assumptions taken in the project plan. The assumptions are tested against the questions like how likely this assumption may or may not go wrong? The real challenge in this method is to identify the assumptions that have been unconsciously made as they often go unnoticed until they go wrong.
To start with your assumption analysis, you should refer to your project assumption register. Each assumption should be checked for its’ probability of occurrence and its respective impact on the project.
Tool 4: Sensitivity Analysis
The sensitivity analysis is a method of quantitative risk identification. It shows the impact of potential risk due to the change in one or more than one inputs. I have used this technique to compare the choices of machinery combinations for mining. The technique helped us in deciding the most economical option as well as the identification of risk due to changes in various inputs.
Here is a snapshot of the same analysis. You can use it in a similar fashion to choose between options and the impact of inputs on the result.
Tool 5: Fishbone Diagram
The fishbone diagram is a graphical method of representing the identified qualitative risks. It appears similar to a fish skeleton; hence the name comes from it. It is the cause-and-effect method of risk presentation.
The diagram contains the risk statement (i.e., effect) in the fish head. A horizontal main branch extends from the head and is connected to the major branches. Each major branch represents a potential cause for the risk mentioned in the fish head. Further, each major branch can have minor branches coming out of it. The minor branches represent the reasons for the occurrence of a major branch.
Here is a snapshot of the fishbone diagram that I had made for my project.
It is one of the prime duties of a project manager to gather the team and brainstorm for risk identification. It is more beneficial to conduct this exercise early in the project planning stage.
The choice and suitability of tools & techniques depend upon the phase of risk identification, data availability, the experience of a team with risk identification tools, choice of method: qualitative or quantitative etc. Hence, for deciding the tools & technique a collective decision making is required.
The tools that I use may or may not apply as it is to your project and may need customization as per the stakeholder expectations, organization-specific formats, management requests etc.
It should also be well noted again that the effectiveness of these methods lies in the exhaustive risk identification, planned treatment method and its’ implementation. Without treatment implementation, the tools are a mere document having no value.
Claims are are a big threat to a project, learn these effective methods to manage the claims.
Prevention is better than cure. Read about these 20 general contract clauses that can help you reduce, transfer or avoid the risks when formulating the contract.
Get this project schedule template for free to plan better for your project and avoid the risk of schedule overrun.
What tool do you use to identify the risks? Let me know in the comments below and don’t forget to share with your network.