Dynamic team discussion led by a confident female professional, illustrating leadership and communication in risk management meetings.

Understanding What is Qualitative Risk Analysis

By: Dr. Michael J. Shick, MSPM, PMP, CSM

Pathfinding your way through the complex landscape of project risk can feel like navigating through a minefield. Whether unexpected budget escalation, unforeseen weather delays, or a global pandemic, project management is fraught with challenges that can derail even the most meticulously planned project.

What if there was a fast and relatively easy systematic way to identify, assess, and prioritize risks, enabling you to focus on the most critical threats and opportunities? Look no further than Qualitative Risk Analysis, which is a crucial tool in the project manager and risk manager’s arsenal. It assists those leaders in how to qualitatively manage risk in a project by mitigating the risks and harnessing opportunities effectively for project success.

Imagine you are the Project Manager, overseeing the project lifecycle (i.e., initiating, planning, executing, and closing), where potential issues are not just afterthoughts but are anticipated and planned for from the beginning. You leverage your team’s collective wisdom and expertise, to identify risks and counteract threats, and safeguard your project from costly delays, setbacks, and creep. The power of practical Qualitative Risk Analysis is that it provides a structured, systematic approach to assessing and prioritizing risks, allowing for timely, targeted responses that keep your project out of trouble and on track.

Let’s dive into the world of Qualitative Risk Analysis and uncover the tools, techniques, and best practices that will help you understand how to manage risk qualitatively in a project. Further, you will learn to navigate the uncertainties of project management with confidence, ensuring your projects are delivered on time, within scope, on budget, and within quality requirements. Equip yourself with the knowledge and skills to leverage Qualitative Risk Analysis, which should be one of the cornerstones of your risk strategy and drive your projects to successful completion.

Are you ready to take control and lead your project clear of unforeseen challenges? Embark on the essential journey to effectively mastering Qualitative Risk Analysis!

Key Takeaways

     

      • Qualitative risk analysis leverages expert judgment to assess and prioritize risks methodically

      • Key steps include assessing probability and impact, evaluating other factors, ranking risks, and identifying risk owners

      • Benefits include early insight, group wisdom, lower resources, and simplicity

      • Popular techniques include expert judgment, categorization, probability/impact assessment, multi-criteria decision analysis, and recommended incorporation of Artificial Intelligence (AI)

      • Challenges with qualitative risk analysis are subjectivity, difficulty estimating exact probabilities, and less rigor than quantitative analysis. Best practices can help to mitigate the concerns 

    "Magnifying glass over 'RISK ANALYSIS' note, showcasing the focus on meticulous risk assessment in project management and business planning."

    What is Qualitative Risk Analysis?

    Qualitative Risk Analysis is a systematic subjective assessment of the likelihood and impact of different risks on a project. It prioritizes risks based on their potential consequence(s) in meeting the customer/client requirements to achieve project outcomes. Additionally, it aids project teams in focusing their efforts on what they believe are the most significant risks. The method apply qualitative risk analysis involves subjective rather than quantitative metrics to determine the likelihood and impact of identified risks by ranking them as low, medium, or high (Kerzner, 2017).

    This approach enables teams to identify which risks need immediate attention and action through expert judgment, even without numerical data. The method takes the project teams and other stakeholders’ consensus and collectively develops a comprehensive and prioritized list of risks. Despite the lack of quantifiable data, the accumulated expert judgment provides valuable insight into the potential impact of risks on the project, ensuring that the team can implement strategies to mitigate these risks effectively.

    The Qualitative Risk Analysis process continues after an initial assessment. Risks and their prioritizations may change as the project progresses, making it essential to repeat this process at different project stages (Project Management Institute, 2023). Ultimately, the Qualitative Risk Analysis process is about making the best possible decisions with the available information, ensuring the successful navigation of the project towards its goals despite the uncertainties and risks involved.

    In short:

    Qualitative risk analysis is a process of assessing the impact and likelihood of risks without using numerical data. It helps in understanding and prioritizing risks using a more subjective approach, which can be useful for decision-making in risk management.

    "Wooden blocks spelling out 'RISK', depicting the step-by-step process of risk identification and management in a business context."

    Why Manage Risks Qualitatively?

    Many project managers and project teams preferred Qualitative Risk Analysis because:

    Early Insight:

    It offers a preliminary understanding of risks when details are unclear, allowing teams to plan and prepare for risks proactively.

    Group Wisdom:

    It brings together experts to provide a more well-rounded understanding of risks, enhancing the accuracy and effectiveness of the risk management process.

    Lower Resource Needs:

    The qualitative approach to risk management requires fewer resources in terms of time and cost and supports projects of various sizes and scopes, ensuring that even projects with limited resources can effectively manage risks (Project Management Institute, 2023).

    Simplicity:

    It provides a straightforward approach to assessing risks without the need for complex mathematical calculations, making it more efficient than quantitative modeling (Kerzner, 2017).

    Project managers employ a qualitative probability and impact matrix for efficient risk evaluation.

    Perform Qualitative Risk Analysis 

    Qualitatively managing risk in a project is an essential process step within project risk management. The focus is on analyzing potential risks and prioritizing each risk occurring based on the subjective probability of occurrence and impact. This process helps teams to identify which risks necessitate attention and resources for mitigation and management. The Process Groups: A Practice Guide by the Project Management Institute outlines the steps (Project Management Institute, 2023).

    Steps Include:

    Assess Probability and Impact:

    Assessing the inputs from the project management plan, risk management plan section, project documentation, enterprise environmental factors, and organizational process assets, evaluate each identified risk in terms of its likelihood (probability) and its potential effect (impact) on project objectives such as scope, schedule, cost, and quality. This assessment typically using qualitative risk analysis employs subjective scales, such as Likert-type scales, low/medium/high, or numerical scales 1-5.

    Evaluate Other Factors:

    Next, consider other characteristics of risks, such as their urgency, manageability, and the resources they might consume.

    Determine Risk Ranking:

    You then assess probability, impact, and other factors to generate an overall risk ranking. This supports prioritizing risks and focuses the team’s efforts on managing the most significant of those identified.

    Identify Risk Owners:

    A project manager shall also identify individuals or groups responsible for each high-priority risk. The owners are accountable for the risk(s) leading the development and implementation of the risk response plan and strategies and for all associated actions.

    Benefits:

    The process helps effectively and efficiently allocate resources to the most critical risks and ensures the risks are addressed to avoid adverse outcomes. It also promotes transparency among project stakeholders and encourages confidence and trust in the project manager, the team, and the project management process (Kerzner, 2017).

    "Intense negotiation between two professionals, symbolizing the critical nature of decision-making and risk assessment in business meetings."

    Qualitative Risk Analysis Techniques 

    Qualitative risk analysis assesses and prioritizes risks, contributing to more efficient and targeted risk management strategies. Some of the more popular, qualitative risk management and analysis techniques include:

    Expert Judgment

    Leverage the knowledge and experience of risk experts to assess and analyze threats and opportunities. Expert judgment contributes to more accurate and reliable risk assessments.

    Risk Categorization

    Grouping risks by their source, such as technical, quality, or resource risks, allows for a more organized and systematic understanding of the risk landscape. It promotes targeted risk response strategies and ensures that similar risks are managed consistently and efficiently.

    Risk Probability and Impact Assessment

    It involves the qualitative assessment of risk likelihood and impact using ordinal scales (i.e., low, medium, and high). It helps prioritize risks by clearly understanding each risk event’s potential impact and probability (Project Management Institute, 2023).

    Multi-criteria Decision Analysis

    A project manager and team members score risks based on multiple factors; this technique helps determine the priority of each risk. It ensures a comprehensive assessment evaluating risks, considering various aspects of hazards, and contributes to developing well-informed and robust risk management strategies.

    Artificial Intelligence (AI)

    Considering AI and its potential for significant disruption, project managers should leverage the technology to aid in recognizing any gaps/seams in the current risk register and assist in brainstorming for new potential risks.

    "Business professional making a daring leap between two cliffs, depicting risk-taking and overcoming challenges in corporate strategy."

    Qualitative Risk Analysis Challenges

    Some of the challenges that come with doing a qualitative risk assessment include:

    Subjective Assessments Prone to Bias:

    Given the subjective nature of performing qualitative risk analysis, expert judgment is inherently prone to biases and variability in assessments. Different individuals may have varied opinions analyzing risks, leading to inconsistencies in risk prioritization and response, which, when unaccounted for, may lead to misprioritization and ineffective responses.

    Difficulty Estimating Exact Probability and Impact:

    Subjective scales may not capture the nuanced differences in risk levels, potentially leading to overlooked risks or misallocated resources; therefore, quantitative data should be used when possible to support your qualitative analysis.

    Less Rigorous than Quantitative Analysis:

    Argued to be less rigorous compared to quantitative risk analysis, the qualitative analysis may not provide the detailed insights needed for complex projects with nuanced risk landscapes.

    "Keyboard button with 'Best Practices' highlighted, representing the importance of following industry standards in business and risk management."

    Qualitative Risk Analysis Best Practices

    Ensuring the effectiveness and reliability of qualitative risk analysis involves employing various best practices that contribute to more accurate and consistent risk assessments, such as:

    Use Facilitators to Minimize Bias During Group Assessments:

    Employ impartial facilitators during group risk assessment sessions to ensure that every voice is heard and no single opinion dominates.

    Validate Opinions Against Historical Data When Possible:

    Cross-check the opinions and assessments of experts with historical data and information from similar past projects. When doing so, assess the risk exposure compared to the identified risk responses to ensure your team has considered all possibilities.

    Seek Diverse Opinions to Balance Blind Spots:

    Diversity of thought helps balance individual biases and blind spots, leading to a more holistic understanding of risks. Involve multiple experts to provide a wide array of perspectives on risk assessment.

    Provide Rating Criteria to Standardize Assessments:

    Offer clear and consistent rating criteria for assessing risks. Defined scales and measures to ensure everyone is on the same page assessing risk together, leading to more consistent and reliable risk assessments.

    Update Assessments as New Data Becomes Available:

    As the project progresses, new information and data will emerge; therefore, regularly revisiting risks and adjusting the assessments based on further information or insights is essential. This practice helps keep the risk analysis current, relevant, and reliable.

    Artificial Intelligence (AI):

    Use AI (e.g., ChatGPT, Bard, Anthropic, etc.) to identify any risks that may not already be present and prompt the technology to assist in identifying any perceived bias.

    "Paper note with 'Final thoughts' written on it, symbolizing conclusions and summaries in business reporting or project documentation."

    Final Thoughts

    Qualitative risk analysis plays a critical role in project risk management. It provides a structured approach to assess the likelihood and impact of identified risks, enabling project teams to focus on the most critical threats and opportunities. This method of risk treatment relies heavily on the subjective nature of human judgment and experience and offers a practical way to navigate uncertainty, especially without precise data.

    Expert judgment, risk categorization, and multi-criteria decision analysis are among the popular techniques employed to enhance the effectiveness of qualitative risk analysis. AI is another tool to provide a more robust identification and support strategy generation. Despite potential subjectivity and other challenges, using best practices and continuous monitoring and control mechanisms significantly enhances the reliability and usefulness of qualitative risk analysis.

    While qualitative risk analysis is an excellent tool for early risk identification and prioritization, it is essential to recognize scenarios that demand the more detailed scrutiny using quantitative risk analysis, such as complex and high-impact projects.

    The strategic application of qualitative risk analysis, augmented with other quantitative risk assessment methods as appropriate, promotes the opportunity for project managers to manage project risks and ensuring project objectives are achieved effectively and efficiently with minimal unforeseen disruptions.

    References

    Kerzner, H. (2017). Project management: a systems approach to planning, scheduling, and controlling (12th ed.). John Wiley & Sons.

    Project Management Institute. (2023). Process groups: A practice guide. Project Management Institute. 

    About the author: Dr. Michael J. Shick, MSPM, PMP, CSM, founder of ROSEMET, is a combat-wounded warrior and retired senior military officer turned esteemed academic and project management expert. Holding a doctorate from Creighton University and serving as an Assistant Professor at Western Carolina University, Dr. Shick’s dedication goes beyond credentials, as he commits to empowering individuals and organizations toward project excellence. With an extensive military, academic, and project leadership background, he epitomizes resilience, expertise, and a steadfast devotion to fostering growth and success in others.