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PMP Exam Tip: Why do we use a Probability and Impact Matrix?

Posted: Fri 29 Apr 2011 7:37 am
by cornelius.fichtner
The probability and impact matrix sounds very complicated, but the concept is actually something that most people use in their everyday life quite frequently, although in a simpler form.

The probability and impact matrix comes into play when the project manager or team members determine that a particular phase or activity within the project contains a certain amount of risk. That risk needs to be quantified.

Each risk is given two sets of criteria which are then viewed on the probability and impact matrix. Each potential event is rated based on the likelihood that it will occur. It is also separately rated regarding how much of a problem would be created if it were to occur. The probability and impact matrix is used because it allows you to merge both of these components onto the same scale.

The matrix is used to review both sets of criteria at the same time. The result is that each potential risk can be designated as a low risk, a medium level risk or a high risk and then handled accordingly.

Now go ahead and open up your PMBOK Guide on page 292 and look at figure 11-10, which is an example of a probability impact matrix. The probability that a particular even will happen is shown along the left side of the chart and the degree of impact is shown along the bottom.

For example:

  • If the probability level was very low (.10) and the potential impact was also low (.10), the score on the matrix would be a .01.
  • If the probability level was medium (.50) and the potential impact was medium (.20), the score on the matrix would be .10.
  • If the probability level was higher (.70) and the potential impact was higher (.40), the score on the matrix would be .28.

The higher the matrix score, the higher the risk level associated with the item that is being analyzed.

Re: PMP Exam Tip: Why do we use a Probability and Impact Matrix?

Posted: Mon 16 May 2011 7:18 pm
by ramesh
Probability is likelihood of an event taking place.
Impact is result outcome based on occurrence of an event.

Practically while executing projects, a project manager comes across lots of risk and each risk need to be carefully evaluated. For evaluating risks, probability and impact matrix plays an important role and helps manager to take right decisions. Basically the project manager will identify risks and will try to find chances/likelihood of that risk taking place (probability).

Subsequently, he will try to identify the impact of risk on the project outcome. To arrive at logical conclusion, it is advisable to assign numerical values for the probability and impact for the risk identified. Then overall risk score is then calculated by multiplying probability value with impact value.

Probability and impact values are defined on linear scale from 1 to 5.

There are three risks identified as A,B,C.

  • Probability and impact values for Risk A are 2,2.
  • Probability and impact values for Risk B are 3,3.
  • Probability and impact values for Risk C are 4,4.

Overall risk score for A will be 4 (2*2), for B will be 9 (3*3), for C will be 16 (4*4).

Graphical/tabular representation of probability value,impact value and overall risk score is known as Probability Risk Matrix. This helps project manager in prioritizing the actions needed. From the above example it is clear that project manager should first take actions for Risk C.

Probability Impact Matrix is a tool used in performing qualitative risk analysis. As a project manager a major challenge is providing probability and impact values to identified risks.This needs domain expertise and experience. Help should be taken from experts for the same.

Summary: We use probability and impact matrix to:

  • Prioritize Risks
  • Provide input to quantitative analysis
  • Help planning and guiding risk responses
  • Handle threats and opportunities in same matrix

Note: There are good as well as bad risks.

  • Negative risks [bad risks] are called Threats
  • Positive risks [good risks] are called Opportunities

Regards
Ramesh@emensuslearning.com