Risk Impact Weighting


If a risk impacts upon several of your objectives, for example it has potential effects on cost, schedule and performance, then you can assess the impact on each objective individually. However, you may also feel the need for an overall impact assessment, taking all objectives into account. Risk impact weighting helps provide this.


When assessing the overall impact of a risk, you must bear in mind that not all objectives may be of equal importance in the context of your business. Consequently, an impact on one objective may be more significant to you than an equivalent impact on another objective. This can be expressed in terms of an objectives hierarchy, which is a list of the objectives that you have established in order of importance to you.


Example - Developing a New Product

Suppose you are developing a new commercial product, and your objectives for the development project are cost, schedule, product performance, and product reliability. A possible objectives hierarchy in this case might be:

1.   Schedule (if you don’t get to market on time you may lose your market share)

2.   Reliability (if your product has poor reliability, you will lose customers)

3.   Performance (if you lack system capabilities you may lose market share, but not as fast as a reputation for poor reliability will lose it)

4.   Cost (keeping to your development budget is nice, but any overruns will probably be unimportant if sales are strong enough)

This hierarchy is an example only, and may be different in different circumstances.


Impact Weighting Factors

Objectives hierarchies are conveniently expressed in terms of impact weighting factors. These are numerical values in the range 0-100% which are applied to each objective to signify its relative importance to your business, and hence to each risk impact.

Continuing with the product development example above, we might assign the following weighting factors:

     Schedule:       100%

     Reliability:        90%

     Performance:    80%

     Cost:                60%

These factors are assigned via the Risk Impact form, and are used when calculating overall impact.