Risk Assessment Matrix – What Is It & How It Works

Imagine a project running smoothly, then suddenly running into a roadblock. Missed deadlines due to unforeseen delays, or budget overruns caused by rising transportation costs. These are just a few examples of risks that can disrupt even the best-laid plans.

Businesses and projects of all sizes face various risks, and being prepared for them is crucial to meeting the initially set target cost and, ultimately, for business success. The risk assessment matrix is a powerful tool that helps to navigate these uncertainties.

What Is a Risk Assessment Matrix?

A Risk Assessment Matrix, also known as a Risk Matrix or Risk Control Matrix, is a visual tool widely used in project management and various other fields. It acts as a grid-like chart to assess potential project risks based on two key criteria:

• Risk probability (likelihood): How likely is the risk to happen? (very likely, likely, possible, unlikely, very unlikely)

• Risk impact (severity): How bad could the consequences be? (very high, high, moderate, low, very low)

Plotting each identified risk on the matrix, based on its probability and impact, provides a clear view of potential threats. This allows to understand the different types of risks, focus on the ones that demand the most attention during project planning, determine relevant actions for each identified risk to mitigate or eliminate its impact, as well as visualise the relative importance of different risks, facilitating informed decision-making.

What Are the Types of Risk Assessment Matrix?

While the traditional risk matrix focuses on likelihood and impact, there are different types of risk assessments that can be used alongside the matrix or independently. The best type of matrix for a project depends on its complexity, the level of detail required and the resources available.

1. Qualitative Risk Assessment: This is the most common type used with risk assessment matrices. It focuses on qualitative descriptions of likelihood and impact, such as “high,” “medium,” or “low.” It is a good starting point for understanding potential risks and prioritising them based on severity.

   Examples of use: Software development projects with a focus on identifying major functional or integration risks, initial risk assessment for a construction project.

2. Quantitative Risk Assessment: This type uses numerical values to assess both likelihood and impact. It involves data analysis, historical data, or even statistical models to assign more precise probabilities and impact scores. This approach is more detailed but requires more data and expertise.

   Examples of use: Large-scale infrastructure projects (bridges, tunnels), financial investments with potential market volatility, projects with strict safety regulations (e.g., chemical plants).

3. Generic Risk Assessment: This type focuses on identifying and assessing common risks that might be encountered across different projects or industries. It is a good starting point to get a general overview of potential issues but may not capture project-specific risks.

   Examples of use: Risk assessment for IT infrastructure upgrades in a company, initial risk identification for product development projects within a specific industry (e.g., medical devices).

4. Site-Specific Risk Assessment: This type focuses on identifying and assessing risks specific to a particular location, environment, or situation. It considers factors unique to that location and its potential impact on the project or business.

   Examples of use: Building a wind farm in a high-wind zone, a construction project in a region with frequent earthquakes, restoration project on a historical building.

5. Dynamic Risk Assessment: This type recognises that risks are not static. It is an ongoing process that monitors and updates the risk assessment as the project progresses and supplier relationships or business circumstances change. New risks might emerge, and the likelihood or impact of existing risks might evolve.

   Examples of use: Research and development projects with unknown outcomes, construction projects with phased deliveries and potential design changes, large-scale software development projects with ongoing feature updates.

Relationship to Risk Matrix: The risk matrix can be used with any of these types of assessments. Qualitative assessments are commonly used with the matrix due to their simplicity. Quantitative scores, if available, can also be incorporated into the matrix for a more precise evaluation. The matrix itself does not dictate the type of assessment but rather serves as a visual tool to present the results regardless of the method used to evaluate risks.

What Are the Common Risk Rating Scales?

Risk matrices typically use a square grid with scales for probability and impact. Common matrix sizes include:

• 3×3 Matrix (simple and efficient): This is the most basic and widely used format. It is a good choice for projects with a manageable number of risks or for projects where a quick and clear overview of major risk categories is needed.

• 4×4 Matrix (balancing detail and simplicity): Compared to a 3×3 matrix, this grid provides a more detailed view of risks by offering additional categories for both likelihood and impact. This allows for capturing a wider range of risks and their severity levels, making it well-suited for projects of moderate complexity.

• 5×5 Matrix (highly detailed and precise): This grid provides the most detailed risk assessment. It is best suited for complex projects with many potential risks and a need for precise risk assessment.

Key Differences: Risk matrices differ in various ways. Here’s the breakdown:

Choosing the right grid: The choice of grid size depends on various factors including the project’s complexity and the desired level of detail in evaluating risks. Here are the key factors to consider:

How Does a Risk Assessment Matrix Work?

1. Making a Risk Assessment Matrix

Risk matrix can be prepared as per the following main steps:

1. Pick your tools: Choose how to create your matrix (spreadsheet, project management software, pre-made matrix template).

2. Brainstorm risks: Identify all potential project roadblocks, internal and external.

3. Select risk approach: Pick a method (qualitative, quantitative, etc.) that fits your project’s complexity and resources. This also includes choosing the grid size (3×3, 4×4, or 5×5) for your matrix.

4. Rate risk impact & probability: Estimate how likely each risk is to occur (probability) and how badly it could impact your project (impact).

5. Plot & prioritise: Place each risk on the matrix based on its likelihood and impact. Focus on addressing high-probability, high-impact risks first.

2. Calculating Risk in the Matrix

There are two common methods used to calculate risk in a risk matrix:

1. Qualitative approach (simple ranking): This approach is favoured for its ease and speed. It uses descriptive terms like “high,” “medium,” or “low” for both likelihood and impact. The risk rating is then determined by combining these categories.

   Example: A risk with a “high” likelihood and “medium” impact might be ranked as “high-medium” or simply “high,” indicating a significant concern requiring attention.

2. Quantitative approach: This method offers more precision by assigning numerical values to both likelihood and impact. These values are then multiplied to generate a risk score.

   Example: Likelihood: “high” (assigned a value of 4), Impact: “severe” (assigned a value of 5). The risk score would be 4 x 5 = 20. This allows for an objective ranking of risks, with higher scores indicating greater threats. 

3. Using the Matrix

Once you have a populated risk matrix, you can use it to proactively manage project risks. Here are some key steps:

1. Prioritise: Focus on high-risk areas (red zones) in the matrix. These require immediate attention. Develop plans for moderate risks and document even low ones.

2. Develop strategies: Create plans to manage risks. This could involve:

   • Avoidance: Eliminate the risk entirely (e.g., find multiple material suppliers).

   • Mitigation: Reduce the risk’s impact (e.g., implement stricter quality control procedures).

   • Transference: Shift the risk to someone else (e.g., purchase insurance to cover delays caused by labour strikes).

   • Acceptance: Live with the risk if the consequences are manageable (e.g., schedule buffer for bad weather).

3. Make a plan: Create a detailed risk management plan outlining actions, responsible parties, resources, and timelines for addressing each risk.

4. Communicate: Share the matrix with stakeholders for informed decision-making.

5. Update regularly: Review the matrix as your project progresses. New information may require updates to the matrix and the risk management plans.

By following these steps, your risk matrix becomes a dynamic tool for proactive risk management throughout your project life cycle. It’s particularly effective when integrated into broader procurement transformation, allowing for a more structured approach.

How to Maintain a Risk Assessment Matrix?

A powerful matrix needs ongoing care to stay effective, this involves:

• Train & review: Training teams on risk assessment and holding regular reviews (monthly is a good start) to update risks, ratings and controls based on project progress and new information.

• Team & stakeholder input: Encourageing team member input for a comprehensive risk view, and keep stakeholders informed about risks and mitigation plans.

• Communication & process: Maintain clear communication channels for risks with internal and external stakeholders and consider process improvements to reduce them.

• Proactive measures: Design processes, products, or services with risk mitigation in mind, have contingency plans, and learn from industry best practices.

• Lessons learned: After project completion, analyse past data to identify common risks and refine your risk assessment process for future projects.

By following these practices, risk matrix remains a collaborative tool that continuously improves project outcomes.

Example of a Risk Assessment Matrix

The following is an example of a basic 4×4 risk matrix, focusing on a construction project. This format can be adapted to specific needs regarding project complexity.

Risk rating: The risk rating is determined by the intersection of the risk probability and impact. Here, a 4×4 risk matrix example is used, resulting in 16 possible risk ratings (e.g. very likely – high = very high).

Control measures: The final column outlines some possible control measures to mitigate the identified risks. These can be further elaborated upon in a risk management plan.

What Tools Are Available to Create a Risk Assessment Matrix?

There are many ways to create a risk matrix. Popular options include:

• Spreadsheets (Excel, Google Sheets): Ideal for customisation and control over layout, categories and rating scales. Great for smaller projects or when a specific format is needed.

• Project management software (Asana, Trello): Streamlines risk assessment within your existing workflow and fosters collaboration with built-in features and familiar interfaces.

• Dedicated risk management software: Offers advanced features like risk scoring and trend analysis for complex projects or high-risk environments. Perfect for in-depth analysis and comprehensive risk management plans.

• Online templates: Free or paid matrix templates provide a quick starting point with pre-defined categories for basic projects, saving time on initial setup.

To determine the suitable option, there are some key features to consider in the software selection process:

• Pre-built risk register templates.

• Integration of risk register for centralised risk data storage.

• Ability to define and customise risk matrix categories.

• Options for assigning probability and impact ratings.

• Automated risk score calculations (if using a quantitative approach).

• Sorting and filtering functionalities to prioritise risks.

• Risk owner assignment for clear accountability.

• Risk mitigation progress tracking.

• Risk reporting.

• Visualisation tools for charts and heatmaps to represent risk data.

Overall, choosing the right method depends on project complexity, team size and desired features. The key is a clear, concise and easy-to-understand matrix.

What Are the Benefits & Limitations of Using a Risk Assessment Matrix?

The risk matrix offers valuable tools for project management, but it is important to understand its strengths and limitations.

Benefits:

• Proactive risk management: The matrix allows for early identification and mitigation of risks, minimising their impact on the project.

• Prioritisation and focus: By highlighting critical risks (high probability and impact), the matrix helps focus resources and attention on the most important issues.

• Improved decision-making: A clear and visual representation of risks allows for better-informed decisions regarding resource allocation, project planning and overall management strategies.

• Enhanced communication and collaboration: The matrix provides a standardised and concise way to communicate project risks to all stakeholders, fostering transparency and collaboration.

Limitations:

• Subjectivity and uncertainty: Assigning risk probability and impact involves some degree of subjectivity, and unforeseen events can always emerge.

• Data dependence: The effectiveness of the matrix relies on the quality of the data used. Inaccurate or incomplete information can lead to misleading results.

• Oversimplification: Complexities of real-world risks may not be fully captured in a matrix. Use it as a guide, not a definitive answer.

• Time and effort: Creating and maintaining the matrix requires time and effort.

• Over-reliance: The matrix should complement sound project management practices and continuous monitoring, not replace them.

Conclusion

The risk assessment matrix is a powerful tool for professionals across various fields, including engineering, construction, procurement, financial, and IT among many others. It offers a systematic approach to managing risks, ultimately boosting your project’s success rate and avoiding costly surprises. This is not a one-time activity, it is an ongoing process, requiring continuous monitoring and adaptation throughout the project lifecycle.

Common FAQs About the Risk Assessment Matrix

1. Is a risk matrix complex to create?

Creating a basic risk matrix is fairly straightforward. You can use a simple Excel sheet with a grid and defined scales for likelihood and impact. More complex projects might benefit from dedicated risk management software with additional features.

2. What if I can not decide between two likelihood or impact scores?

Some subjectivity in scoring is acceptable. When in doubt, prioritise caution and select the higher rating. This approach safeguards against underestimating potential risks. You can always refine your assessments as you gather more information.

3. Who should be involved in creating and maintaining the risk matrix?

Involving a variety of stakeholders in the risk assessment process is beneficial. This could include project managers, team members, subject matter experts, and even clients. Each person brings a unique perspective that can help to identify potential risks and develop effective mitigation strategies.

4. What are some alternatives to the risk matrix?

While the risk matrix is a popular tool, there are other risk assessment methods:

• FMEA (Failure Mode and Effect Analysis): The FMEA method focuses on identifying potential failure modes in a system or process.

• What-If scenario planning: This involves brainstorming potential negative outcomes and considering mitigation strategies.

• Delphi technique: This method gathers expert opinions anonymously to assess risks and their impact.

• SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats): This goes beyond threats, considering your project’s strengths, weaknesses, and opportunities, providing a broader perspective to inform risk management strategies and leverage opportunities to mitigate threats.

The best approach may involve combining the risk matrix with other techniques for a more comprehensive understanding of project risks.

5. Can I use a risk matrix for anything other than projects?

Absolutely, risk matrices are valuable tools in various contexts, including:

• Product development: Identify potential issues that could affect product launch or performance.

• Business decisions: Assess risks associated with new market ventures or strategic initiatives.

• Personal finance: Evaluate potential risks to your financial goals, such as job loss or unexpected medical bills.

6. Where can I find more information about risk matrices?

Many resources are available online and in libraries. Project management institutes and professional risk management organisations often offer resources and training materials.

By addressing these FAQs and effectively using a risk matrix, you can significantly enhance your project risk management skills and increase chances of project success.