Article Summary

Title: Risk Factor Analysis – A New Qualitative Risk Management Tool

Authors: John P. Kindinger, and John L. Darby

This article was written by two members of the Probabilistic Risk and Hazards Analysis Group at the Los Alamos National Laboratory (LANL). They developed a qualitative and systematic project risk analysis method called Risk Factor Analysis (RFA), which is used as a tool for analyzing risk. The RFA helps to identify factors that drive the behavior of the project schedule, cost, and technical performance. The list below shows the six primary steps in conducting a Risk Factor Analysis.

  • List activities, tasks, or other elements that make up the project
  • Identify applicable technical risk factors
  • Develop a risk-ranking scale for each risk factor
  • Rank risk for each activity for each risk factor
  • Sum the results across risk factors for each activity
  • Document the results and identify potential risk reduction actions for evaluation by the project team

The first step in conducting an RFA is to identify the activities, tasks, or elements of the project that need to be evaluated. The WBS and baseline schedule are very good places to start. From this information, an analyst can create a flow chart of the project activities to help organize the RFA. The second step is to identify all of the risk factors, which are all of the issues, topics, and concerns that drive the behavior of the project as a whole. To help the RFA, the risk project spectrum is broken down into four categories. The four categories are: Technical risk, Schedule risk, Cost risk, and Funding risk. These four risk categories can usually be applied to any project and therefore are generic by nature. The third step in conducting an RFA is to develop a risk ranking scale for each risk factor. Each risk factor is ranked according to these qualitative definitions: none/low, medium, and high. An example of this step is shown in the article. The fourth step is to rank the risk for each activity for each risk factor. This can be done in a spreadsheet document, which can also record the justification for each risk assignment. The fifth step is to sum the results across the risk factors for each activity. An example of this is provided in the article. The sixth and final step is to document the results and identify potential risk reduction actions. Once the high risk factors are known and documented, the project team can then formulate actions to help reduce the risk associated with those activities.

The RFA technique was developed and implemented by the LANL as a tool for risk analysis. They have been using it on medium size projects and the results have been very positive for them. The RFA can be a useful tool that can be used on a wide spectrum of projects. This article was sponsored by the Project Management Institute (PMI).