Qualitative Risk Analysis: Definition, Methods and Steps
Qualitative risk analysis is an essential step when conducting risk management that helps you
manage a project and maintain its schedule. Preparing these can help you avoid potentially costly
delays or mistakes, which helps ensure the project succeeds. Learning more about these analyses
can improve the way you coordinate projects for your team.
In this article, we discuss what qualitative risk analysis is, explain some common methods you
can use for one, describe how you can perform one of these analyses and identify some
differences between a qualitative and quantitative risk analysis.
What is qualitative risk analysis?
Qualitative risk analysis is the process of identifying, analyzing and evaluating risks in an
organization. Qualitative risk analysis uses subjective judgment to determine the probability of a
risk occurring and its impact on an organization. The outcome of this process is a list of risks
with their corresponding probabilities and impacts. Project managers often conduct these during
the earliest phase of project planning and review them as the project progresses and requirements
change. This helps the business find better strategies for addressing risks or deciding if an
opportunity is worth pursuing.
Qualitative risk analysis methods
Qualitative risk analysis methods identify potential opportunities and threats in the business
environment. These methods focus on different elements of a business rather than on financial or
technical factors. Some of the most common qualitative risk analysis methods include:
Delphi method
This technique identifies and prioritizes the most important risks in a project and forecasts the
likelihood of occurrence for each risk event, including their impact on project objectives. It
involves experts' responses to a series of questions about the probability and impact of events. In
this, the project manager compiles responses from experts, reviews the results and corrects any
errors or misunderstandings. Each round takes place over several days or weeks, and experts
often continue to submit their responses until the project manager has all the information they
want.
Risk probability and impact assessment
This method determines whether a risk is acceptable or unacceptable based on both its
probability of occurrence and its potential severity if it occurs. The process involves assessing
each risk against an organizational goal or objective. You can base the risk probability estimation
on a simple scale, such as low, medium or high. Risk impact assessment happens according to
how it affects one or more key project objectives, including the project schedule, cost, quality or
resource consumption.
Decision tree analysis
This process involves identifying all possible outcomes of an event and assigning them
numerical values. These values determine their likelihood of occurring, and the higher the value,
the more likely the risk can occur. These values can guide you in choosing the most effective
actions to reduce the risk.
Bow tie analysis
This method identifies, assesses, classifies and develops mitigation strategies for a certain risk.
This method gets its name because its analysis chart looks like a bow tie, and it helps identify the
relationships between causes and effects. On one side is a list of things that may result in
negative events, while on the other is a list of all consequences of the event. A bow tie analysis
helps you develop strategies to eliminate those causes or effects.
SWOT analysis
A strengths, weaknesses, opportunities and threats (SWOT) analysis is a strategic planning
method for evaluating the various components of a project and how they might affect its
outcome. The analysis involves identifying the internal and external factors that are favorable
and unfavorable to achieving the venture's goals. Strengths and weaknesses are internal, while
opportunities and threats are external. This method helps determine a company's ability to
eliminate or withstand each risk.
How to perform a qualitative risk analysis
Qualitative risk analysis is an approach that analyzes the factors that affect an organization and
its ability to achieve its goals. It helps to determine the overall risk of a project or program. This
analysis involves identifying the risks of a project and assessing their potential impact on mission
success. The following are the steps for performing qualitative risk analysis:
1. Identify the project risks
The first step in qualitative risk analysis is identifying the risks that are most important to you.
This might be because they're likely to affect your project or because they're causing problems
right now. Consider creating a list of potential risks and rank them according to their importance
or impact on your objectives.
2. Assess the project risks
This involves identifying and prioritizing risks, deciding how to manage each threat and
documenting your findings. You can use a risk register to list all the major risks on your project
against each risk category in order of importance. This allows you to address the major risks in
each category, which can help you save resources.
A trained project manager or quality assurance engineer can lead the analysis. This step aims to
identify all possible risks and rank them and their impact on the project. You might not be able to
eliminate all risks, but you can identify the most important ones and implement measures to
mitigate them. Later on, you can develop an action plan for resolving each risk.
3. Prepare a risk report
A risk report is a document that summarizes your findings, explains the nature of each risk and
describes what you plan to do about it. It often includes a risk summary, risk rating, response
options, recommendations and the timeline for implementing responses. You can use the
document as a benchmark in case of other risks in the future.
4. Implement and monitor risk response plans
Risk responses are actions you can take to reduce or eliminate a threat's causes, probability or
impact. Once you identify the risk response plan, try to implement it immediately to determine
whether the solution works or could use some changes. Then, you can take further corrective
actions and repeat this process until you solve the issue.
5. Monitor and control the risks
After analyzing risks, monitor and control them throughout the project. Because your risk
management plan is a living document, update it as new risks or changes occur to ensure your
risk management plan is current. Communication is important throughout the process so
everyone knows what could go wrong and what they can individually do if the events occur.
Qualitative vs. quantitative risk analysis
Quantitative risk analysis involves determining how likely it is for certain risks to occur, how
severe they might be and how much it could cost to mitigate them. This analysis employs
mathematical formulas or computer software to calculate these metrics, and it uses historical data
from similar events or trends within an industry. For example, you might determine
there's a 50% chance for a company's computer system to crash during production, with a
severity level of 10 on a scale of one to 10, and the cost of hiring additional staff to handle these
issues would be $1,000 per hour.
Qualitative risk analysis is more subjective because it focuses on risks you can't easily quantify
or measure objectively. This method involves identifying and evaluating risks during planning or
periodically throughout the project. Qualitative risks often involve political or environmental
factors beyond your control and are less predictable than quantitative risks. For example, you
might determine there's a high probability a company could lose its contract with its biggest
customer if the company outsources its information technology (IT) services overseas instead of
keeping them internal.
