Pin Me

The Limitations of Risk Assessment Analysis

written by: Tara Duggan • edited by: Ronda Bowen • updated: 10/16/2010

Risk assessment analysis techniques help a project manager analyze events that could delay project completion. Then, she can identify actions that might minimize or eliminate disruptions. Limitations of risk assessment analysis include lack of data, insufficient expertise and legal requirements.

  • slide 1 of 5

    Introduction

    406px-Risk-dice-example Risk assessment analysis starts with identifying potential threats and the probability of their occurrence. Employee illness, supplier delays, computer failures, cost overruns, financial instability or natural disasters can all have an impact on a project in a significant way. Without proper planning, project managers limit their ability to respond effectively. Once the project manager identifies likely threats, she needs to assess its impact using all the available data. Then, managing risks typically involves using existing resources to handle the situation, deploying a contingency plan or investing in alternative resources to accomplish project objectives. Reviewing the risk management plan with the team ensures that all members understand the ramifications of potential problems and solutions. Effective risk assessment analysis depends on recognizing the limitations of any technique used.

  • slide 2 of 5

    Lack of Data

    Many risk assessment analysis techniques involve gathering data. For example, developing models or simulations can help predict the impact of events, such as natural disasters caused by severe weather conditions. Unfortunately, creating accurate models requires extensive data collection, which can be expensive and not necessarily completely reliable. Cost-benefit analysis activities undertaken to identify countermeasures may also suffer if incomplete data collection occurs. Legal and social or ethical requirements may override financial advantages. Using data to make decisions may be unwise if the use of simple indicators does not reflect the complex realities of the situation at hand. Applying a decision intended for one small aspect of the project to the entire project may cause unforeseen results.

  • slide 3 of 5

    Insufficient Analysis Expertise and Time

    Using decision trees to analyze risks may provide comprehensive input but analyzing the consequences arising from a myriad of possibilities may prove unwieldy. With the latest technology, the use of computer software programs to simulate activities that can cause a negative impact on project schedules has become much more cost effective. However, it still requires comprehensive skills and knowledge to interpret the results correctly. Complex programs with many variables require trained personnel, who may not be assigned to the project. Similarly, analyzing historical data to determine potential threats requires access to past project documentation and expertise in interpreting the criteria used to evaluate risks on prior efforts. Reliance on historical assessments alone can create a false sense of security if up-to-date skills and knowledge are not applied by trained personnel. Even when highly skilled individuals work on defining threats and proposing solutions, time may be insufficient to gather each person’s expertise and conflicts may arise. Qualitative analysis, using conversational input, can help identify risks but numerical data generated by quantitative methods should also be used to balance decision making.

  • slide 4 of 5

    Conclusion

    Risk assessment analysis helps project managers prepare to deal with events that can negatively impact project schedules. Analysis techniques typically capture and identify weaknesses and threats. Limitations to the analysis process include lack of comprehensive data, insufficient time or training to conduct a thorough investigation and legal or moral constraints that dictate managing events impacting project deadlines. Recognizing the limitations to any approach used ensures that project managers use caution when relying on any one data point or recommendation.

  • slide 5 of 5

    Resources and Image Credit

    • Image Credit: Risk (http://commons.wikimedia.org/wiki/File:Risk-dice-example.jpg)
    • assets:, using existing. "Risk Analysis Techniques - Problem-Solving Training from MindTools.com." Mind Tools - Management Training, Leadership Training and Career Training - Right Here, Right Now.. http://www.mindtools.com/pages/article/newTMC_07.htm (accessed October 14, 2010).
    • "Disaster Assessment Portal." Disaster Assessment Portal. http://www.disasterassessment.org/section.asp?id=20 (accessed October 14, 2010).

Search