When it comes to performing risk analysis, in most cases, these are the six steps to follow:
1. Identify The Risks
The most important and first step involved in risk analysis would be to list any potential risks that you might come across due to the decisions you are making. The source of these risks that you might encounter will be very specific to any decision you decide to make, which is why you must be thorough.
To identify these risks you need to assess any potential threats that could arise due to the decisions or the project. Discuss these with the team, since they may be able to provide alternative perspectives and analyze any data you have available from prior projects. It could also be beneficial to contact teams that have already completed a similar project to obtain their input and perspective when it comes to potential risks.
2. Define Your Level Of Uncertainty
For each risk that has been identified for either your decisions or the projects or a risk analytics jobs, your next step should involve identifying the level of uncertainty surrounding each one. Every risk will be associated with different levels of uncertainty and this can make it difficult to quantify. Even when the level of uncertainty happens to be low or high, you must still try to work out an accurate estimate since you will be using this to determine the next steps in your process of risk analysis.
For instance, if you have identified a risk that involves your competition releasing a product that is very similar to the type you would like to release, it is not possible to determine when they will be able to successfully implement this new product. However, it is possible to lower the level of uncertainty in the way of conducting a competitor analysis for a better understanding of their capabilities.
3. Evaluate The Impact Of Uncertainty
Once you have identified your potential risks along with the levels of uncertainty, your next step involves evaluating their impact. There are several methods you can use to determine the risk impact, and this will mainly depend on specifics relating to the project. Or the decisions you have made and their specific risks. One of the general methods used to calculate the overall impact of risks is to evaluate the likelihood of it happening and then multiplying this by the costs relating to the event. This is known as a “risk value estimation”.
For instance, if you have estimated the risks of your competition releasing a product that is similar to yours at 75%, and you have estimated that the costs to your business would be £100,000 caused by the effect on your overall sales, the “risk value” could be calculated in the following way:
• 0.75 (the likelihood of the event) X £100,000 (the cost of the event) = £75,000 (the value of the risk)
To assist with estimating the costs of specific risks, you need to gather all the information that you can get relating to probabilities along with the costs of these different events playing out to allow you to arrive at the most accurate estimate. You can conduct historical research or utilize internal data on similar competitors or businesses to inform each of your estimates.
4. Complete A Risk Analysis Model
From the information you have collected up until this point, it now becomes possible to form a basis for the risk-analysis model. This will use a collection of all your inputs. This is your uncertainties, your risks, along with their impact. The output of the risk-analysis model will be the outcomes relating to different uncertainties and the probability of them occurring. The output of risk analysis models is usually represented in the form of a “range” which will be based on how accurate the uncertainty estimates are.
There are several risk-analysis software packages to choose from that provide a way to simulate the probabilities of risks and then calculate the likelihood of the different results. This type of software is usually complex and will require detailed inputs. However, it can be extremely useful when it comes to identifying unexpected interactions relating to the risks that could occur simultaneously.
5. Analyze Your Results
Once you have obtained results from the risk analysis, the next step involves interpreting and analyzing the results. This will usually depend on the risk types you are assessing. It can be helpful to summarize your results with the use of visuals which could include graphs or charts. This is an excellent method to transfer complicated data into information that you can read efficiently and quickly.
This can also offer the chance to determine whether outputs from the analysis are validatable and realistic. If your model appears to have designated certain risks as unrealistically expensive or unrealistically likely if it did happen, you can revert back and adjust the model to provide you with more realistic estimates.
6. Implement The Necessary Solutions
Your last step relating to your risk analysis will be to determine which of the risks you can accept and which ones you cannot. For the risks that are not acceptable, you will have to implement a solution to mitigate the risk. This may mean proceeding with a project under a specific condition to mitigate your risks, declining to get the project started since the risks seem to be too high when comparing it with your gains, or accepting the potential costs of the risks if they occur.
The outcomes relating to the risk analysis you have performed allow you to make more informed decisions when you are planning a project and to make the necessary adjustments to increase the likelihood of success when it comes to your project within the goals that you defined.