INTRODUCTION

After identifying the risks in the projects, the next stage in the risk management process is to carry out risk assessment in order to quantify the risk by estimating the probability of occurrence of the risk and the impact of the consequence if the risk occurs. Risk analysis plays a very important in ensuring effective risk management of the project. Rigorous risk analysis before a project is embarked upon will help the concerned authority to establish the financial and technical feasibility of the projects. It can also help to screen out financially unsound projects and can help in overcoming foreseen technical difficulties. An increased understanding of the project risks will lead to formulation of more realistic plans in terms of cost estimates and programs. Knowing the magnitude of the possible impact that may be caused by the contingent factors, the parties can seek for better allocation of the risks through the agreement of suitable contract clauses, procurement of insurance or other risk response measures. Apart from these, a more positive and rational risk-taking attitude will result from a carefully prepared risk analysis, as the risk-takers know where they stand.

There are basically two approaches to assessment of the two parameters which quantify the risks. They are qualitative risk analysis and quantitative risk analysis. The following sections discuss the above-mentioned risk analysis techniques.

QUALITATIVE RISK ANALYSIS

Qualitative risk analysis quantifies the magnitude of the potential consequences and the likelihood that those consequences will occur in linguistic terms using words. Qualitative risk analysis is normally use as a technique for prioritization of the identified risks for further detailed analysis. Linguistics scale with descriptions can be used to describe the probability and impact of risks. Linguistic scale to solicit responses from experts on probability of risk event occurring could be a five point scale with the levels described by the linguistic terms, Negligible, Unlikely, Likely, Highly Probable, and Near Certainty in ascending order. Similarly, the scale for soliciting consequence of risk can be a five point scale with the five levels described with the linguistic terms: Negligible, Marginal, Critical, and Catastrophic in ascending order. Using a probability and impact matrix, risks can be prioritised based on the risk rating. Various levels of risk rating can be formulated based on the various combinations of the scales of probability and impact of the risks. A typical level of risk ratings could be High Risk, Moderate Risk, Low Risk, and None. Table 1 shows a typical probability/impact risk rating matrix.

Table: 1 Typical Probability/Impact Risk Rating Matrix