Wednesday, July 1, 2020
Risk Assessment Chart in Excel
In Excel, creating a risk assessment chart (aka impact / probability chart) is fairly easy. All you need is the risk assessment matrix (with a not so large scale) and about fifteen minutes of time. Once finished you can put this into your favorite presentation software (PowerPoint?) and even make this into a template for the future.
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Beware of risk charts! At best qualitative risk assessment is a guess, the error bands are so wide that the chances of misassigning a risk are very large. A couple of simple under or over estimates of risk and the error bands will put the risk in a far higher or far lower category than is real. This results in resource and management errors and can lead to budget failure or poor risk avoidance investment. Look at Cox's risk matrix paper. https://eight2late.wordpress.com/2009/07/01/cox%E2%80%99s-risk-matrix-theorem-and-its-implications-for-project-risk-management/
ReplyDeleteThe other thing that you are doing in this matrix is multiplying two PDFs: probability distribution functions. Even if you pretend the number assignments are class labels, they still represent a PDF. The only way to multiply PDFs is probably using a Mellin transform. Not that easy in Excel.
How then?
Convert risk to a dollar cost range then the occurence to a probability range; establish min and max event effective costs and decide on action. Even better if you can use reference class risk assessment and apply confidence intervals to any risk event.
Better to be expert than amateur.