Known globally as The Risk Doctor, David has been working in risk management for about 30 years. He has worked in 48 countries on every continent except the Antarctic (too cold!), with clients in most industries.
Beyond probability and impact, there are several other important characteristics of risks that project and portfolio management leaders can use to more instructively answer this seemingly simple but all-important question.
It should not be too hard to answer the question “What is the biggest risk in your project or business?” Most of us know what keeps us awake at night, either worrying about what could go wrong (threats), or getting excited about possible improvements (opportunities). But how do we decide which risk is the “biggest”? Is it just an intuitive feeling, or are there measurable parameters we can use?
It is very common to use just two factors to size risks: probability and impact. These factors estimate how likely the uncertain risk is to occur, and how significant its effect would be if it actually happened. Probability and impact are related to the size of a risk because they describe two fundamental characteristics of every risk:
1. Each risk is uncertain, which means that it may not happen, and “probability” reflects the degree of uncertainty about whether it will happen or not.
2. A risk that occurs would affect our ability to achieve one or more objectives, and “impact” describes our prediction of the extent to which objectives would be affected.