## How qualitative risk impacts and scores are calculated?

General discussion and questions about project risk management and risk analysis software RiskyProject. Includes discussion on how to perform efficient project risk analysis using our software.

Moderator: Intaver Support

Intaver Support
Posts: 892
Joined: Wed Nov 09, 2005 9:55 am

### How qualitative risk impacts and scores are calculated?

To be consistent, we use the same process in both qualitative and quantitative analysis as it is possible to mix the two types in the same risk register. In quantitative risk analysis, we have to use correlation to accurately measure true impacts on project schedule, we cannot use a simple (probability * impact) to rank risks. For example, a risk may have a high impact on one or more activities durations; however, if they are not on the critical path, they may have little or no impact on the overall project duration (though cost impact and score will be reflected accurately). In such cases, even though this risk has a high raw score, its impact is low on the overall project and therefore is ranked accordingly. Therefore the risk impacts for both qualitative and quantitative risks are calculated based on statistical correlation between results of particular risk on particular task or resources and project parameter.

If we have schedule-related risks, there is a correlation between the increase of task duration due to this risk and project duration. For non-schedule risks or in qualitative analysis because there is no defined cost or schedule data on which to measure risk impacts against, the correlation is measured in units or percepts. We assume that the project has 100 units to measure correlation against.

Here is an example:
Risk 1: Alternative 1: 40% chance that duration will increase on 10%
Risk 2. Alternative 2: 30% chance that duration will increase on 20%
(It is a little bit different that on your example, but the idea is the same)

We are run Monte Carlo, around 200 iterations. But in our example let's assume that we have only 10 iterations:
1. Risk 1 outcome = 0% Risk 2 outcome = 20% Total = 20%
2. Risk 1 outcome = 0% Risk 2 outcome = 0% Total = 0%
3. Risk 1 outcome = 10% Risk 2 outcome = 0% Total = 10%
4. Risk 1 outcome = 10% Risk 2 outcome = 20% Total = 10%+20% = 30%
5. Risk 1 outcome = 0% Risk 2 outcome = 0% Total = 0%
6. Risk 1 outcome = 0% Risk 2 outcome = 0% Total = 0%
7. Risk 1 outcome = 10% Risk 2 outcome = 0% Total = 10%
8. Risk 1 outcome = 0% Risk 2 outcome = 0% Total = 0%
9. Risk 1 outcome = 0% Risk 2 outcome = 20% Total = 20%
10. Risk 1 outcome = 10% Risk 2 outcome = 0% Total = 10%

So correlation is calculated between Risk 1 outcome and the Total and then between Risk 1 outcome and the Total. The actual formula for correlations can be found here:
http://en.wikipedia.org/wiki/Spearman's ... oefficient.

If the impact is over 100%, then the values are normalized.

If there are risks belong to different categories they can be summed up using different weights defined in Risk -> Risk Categories dialog.
Intaver Support Team
Intaver Institute Inc.
Home of Project Risk Management and Project Risk Analysis software RiskyProject
www.intaver.com

Tomico
Posts: 49
Joined: Thu May 18, 2006 5:02 pm
Location: Naples, FL

### Re: How qualitative risk impacts and scores are calculated?

Does RiskyProject use different algorithm for risk score calculation for duration, cost, and other risk categories?

Intaver Support
Posts: 892
Joined: Wed Nov 09, 2005 9:55 am

### Re: How qualitative risk impacts and scores are calculated?

For qualitative analysis (without project schedule) risk probability, impact, and score calculation use the same algorithm for all categories: duration, cost, safety, quality, etc.
Intaver Support Team
Intaver Institute Inc.
Home of Project Risk Management and Project Risk Analysis software RiskyProject
www.intaver.com