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Home » Resources » Risk Management » How to Use a Risk Matrix in Project
Management


HOW TO USE A RISK MATRIX IN PROJECT MANAGEMENT

Within the perform qualitative risk assessment process, each identified risk’s
probability and impact score is mapped within the risk matrix tool to help the
Project Manager and team better understand how certain risks may impact the
project. The risk matrix tool communicates the overall project risks and
supplies information, increasing the effectiveness of a risk response. Students
preparing for Project Management Institute (PMI) exams and project managers
refining their skills should know what a risk matrix is and how it benefits the
project.

Students should know PMI’s Project Management Professional (PMP)® exam uses the
term “probability and impact matrix.” However, some project managers informally
call it the: risk control matrix, risk matrix, PMP risk matrix, risk matrix PMP,
or probability and impact matrix PMP. The term “risk matrix” or “risk matrix
PMP” will be used for simplicity.

On this page:

 * What is a PMP Risk Matrix?
 * When to use a Risk Matrix
 * Probability and Impact Matrix PMP
 * Risk Matrix elements
 * How to create a Risk Matrix
 * Risk Matrix advantages and disadvantages
 * Summary

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WHAT IS A PMP RISK MATRIX?

PMI’s “risk probability and impact assessment” description states:

 * Consideration of the likelihood a specific risk will occur
 * Consideration of the potential effect on schedule, cost, quality, or
   performance
 * Impacts will be negative for threats (negative risk)
 * Impacts will be positive for opportunities (positive risk)

Qualitative risk assessment uses the risk matrix tool to understand project risk
better. During the risk assessment, risks are identified and documented. The
assessment of each identified risk includes determining the probability and
impact of it and assigning values. Project managers then calculate risk scores
to plot in a risk matrix to create a holistic visual representation of project
risk.



The risk matrix’s visual depiction conveys the project’s risks, so the project
manager and team are better positioned to determine risk mitigation and response
strategies.


WHEN TO USE A RISK MATRIX

Project managers should complete a risk matrix as part of the perform
qualitative risk analysis process. The risk matrix tool fits within the overall
risk management knowledge area, specifically the early risk processes. After the
perform qualitative risk analysis process, each risk’s probability and impact
are documented in the risk matrix tool.


PROBABILITY AND IMPACT MATRIX PMP

Risk probability is the likelihood of occurrence or what are the chances of that
risk happening within the time frame of the project. Risk impact refers to the
level of disturbance to the project if a risk occurs. Probability and impact are
used in conjunction because you can have a risk that will most certainly happen
(high probability) but with little measurable change for the project (low
impact). Or vice versa, a risk is most unlikely to occur (low probability), but
the project will suffer (high impact) if it does happen.

The definitions of probability and impact levels are determined as part of the
initial risk assessment. For all risk assessments, the quality of the data used
directly correlates to the effectiveness of the resulting project decisions.

The value scale for probability and impact is also tailored to the specific
project within the early risk assessment work. Probability and impact
definitions and the corresponding values for each should be determined early in
the project and consistent throughout the project. Like the definitions, the
value range for probability and impact is tailored to the specific project’s
scope.


RISK MATRIX ELEMENTS

The risk matrix is also called a probability and impact matrix because the two
axes must be probability and impact, even if different words are used.

 * axis for probability, values from low to high
 * axis for impact, values from low to high
 * indicators across the matrix of risk scores to signal the level of
   significance

Companies with formalized risk assessments have risk matrix templates to reflect
their project types or industry. Any risk matrix should reflect these elements:


PROBABILITY (OR LIKELIHOOD) ON X-AXIS

The X-axis should be labeled appropriately to include the scale of values.

 * Probability axis label: probability, likelihood, or likelihood of occurrence
 * Probability axis scale intervals:
   * low, medium, high
   * unlikely, possible, likely
   * highly improbable, improbable, unlikely, probable, highly probable


IMPACT ON Y-AXIS EXAMPLES

The Y-axis should be labeled to include the rating scale.

 * Impact axis label: impact, consequence, possible consequence, or severity
 * Impact axis value scales:
   * low, medium, high
   * minor, moderate, major
   * insignificant, minor, moderate, major, significant

In the probability and impact matrix, both metrics must have the same number of
intervals for calculations and valid assessment to be possible. For example,
there cannot be three intervals for probability (X-axis) and five for impact
(Y-axis). A risk matrix is usually a 3 x3, 4×4, or 5×5 grid to easily fit on one
page and convey the core information visually. The more intervals used, the more
specific the valuation of risk. However, be aware that a bigger scale does not
equate to more accuracy. For example, a scale range of 100 values will add
complication without adding accuracy to your risk management work.

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HOW TO CREATE A RISK MATRIX

Unless there is company-required software, any spreadsheet tool (Microsoft Excel
or Google Sheets, for example) can be used to create a risk matrix. PMI’s A
Guide to the Project Management Body of Knowledge (PMBOK® Guide) – Sixth edition
(page 423) lists a four-step process: Risk Identification, Risk Analysis,
Assessing Risk Impact Level, and Risk Prioritization.


STEP 1: RISK IDENTIFICATION

To identify risks, the project manager and team carefully review project
objectives: scope, budget, timeline, goals, and resources. From that, the
identified risks are documented in the risk register.


STEP 2: RISK ANALYSIS

Each project should have tailored definitions of risk probability and impact to
increase accuracy in risk assessment and management efforts. The project manager
works with the team and stakeholders to define risk probability and values in
addition to the risk impact and measurement for the project.

Each risk will have a probability value for how likely it is believed it could
occur. In risk analysis, interviews with experts within and outside the project
help determine that likelihood.


STEP 3: ASSESSING RISK IMPACT LEVEL

Each risk also has an impact value for how significant it will be to the project
if it occurs. The project’s definition of risk impact, including the values
assigned for different levels, is used in interviews and meetings with those
familiar with the project type to determine the final impact level assigned.


STEP 4: RISK PRIORITIZATION

With the identified risks now having a probability value and an impact value
assigned, within the specific project’s parameters, the risk matrix tool is
ready for risk prioritization. Each risk’s probability value is multiplied by
its impact value to calculate the probability and impact score for plotting on
the matrix.


RISK MATRIX OUTPUT

With the probability and impact scores plotted on the matrix, the project
manager can assign labels to zones to help clarify the range of risk. The labels
can be a combination of text and colors to convey ranking:

 * Low: the color green and text label of “low”
 * Medium: the color yellow and the label of “mid”
 * High: the color red and the text label of “high”

The low zone should be in the opposite corner of the high. The risk matrix
output is a heatmap of risk severity across the project.

Project managers should not depend on color alone to communicate the ranking
considering color blindness and the different meanings associated with colors.
Do not assume everyone can see red or that the color red means “danger” for
everyone. Better to use both text and color for better project team
communication.


RISK MATRIX AS AN INPUT

The project manager gains insight into the amount and range of project risk by
plotting each risk’s probability and impact score on the risk matrix. The
project manager, team, and stakeholders use the risk matrix to group the risks
with the most and the least severity to plan accordingly.


RISK MATRIX ADVANTAGES AND DISADVANTAGES

The risk matrix tool fits within risk assessment and is a simple and
quantitative way of evaluating project risk. It evaluates risks based on their
probability of occurrence and the potential impact on the project.


ADVANTAGES OF RISK MATRIX

When used correctly, including with verified and high-quality data, the risk
matrix helps the project manager with these critical tasks and decisions:

 * prioritizing all risks to gain an understanding of the level of severity
 * informing more accurate risk management strategies
 * providing low-cost means to conduct risk analysis
 * allocating appropriate levels of resources for risk
 * increasing or decreasing the impact of a risk that does occur

A well-constructed risk matrix is an advantage to the project team in these
ways:

 * a visual depiction of risk across the project conveying the significance
 * a means to help the team understand risk across the project
 * identification of areas for which risk is highest
 * information to help better allocate resources for risk

The well-constructed risk matrix is a tool to help the project manager and
project team better reach the project goals as planned.


DISADVANTAGES OF RISK MATRIX

Project managers need to know the disadvantages as well as the advantages of the
risk matrix. One inherent disadvantage of the probability and impact risk matrix
is the potential exclusion of qualitative risk characteristics and their
potential impact. Project managers should use qualitative and quantitative data
whenever possible to increase objectivity and accuracy.

For the project, potential disadvantages of the risk matrix tool include:

 * Matrix categories lack the needed level of specificity to enable accurate
   risk ranking
 * Poor quality data used for values results in inaccurate probability and
   impact scores
 * Failure to account for the timing of the risk occurring in terms of the
   potential impact of it
 * Overall subjectivity of risk assessment leading to unreliable values used in
   calculations

If the project manager fails to communicate the risk matrix results to the team
and stakeholders, the team can have several disadvantages. The lack of
transparency conveys a lack of trust among the project manager and team, with
long-lasting negative impacts during the project. A failure to share the risk
matrix with the team creates a lost opportunity for the team to have information
to guide their responsibilities within the project better.


SUMMARY

Project managers use the risk matrix tool as part of the perform qualitative
risk analysis process. The risk matrix tool, known as the “risk matrix PMP” or
“probability and impact matrix PMP,” is the visual representation of project
risk allowing for a better understanding of risk across the project. Project
managers use the risk matrix tool to see the “danger level” of risk for the
project. Using a well-constructed risk matrix, the project manager and project
team can conduct more effective risk mitigation and response aligned to the
significance of each risk.



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