Risk Matrices

Using Risk Matrices for Large Construction Projects

The use of risk matrices as the risk management activity is a long established process. It was introduced over 50 years ago in the space race and has been an accepted activity since.

It’s a simple process to layout the matrix. All of the information requested is qualitative and speculative. We begin by filling in the diagonal. All risks that are identified, are classified and entered.

 

 

Negligible Marginal Critical Catastrophic
Certain Small tool breakage and loss
Likely A physical injury on the job site causing missed work days
Possible Strike, Government and Regulatory Issues
Unlikely Crane falls over
Rare Death of worker

 

A few issues come to mind:

  1. Catastrophic risk can bankrupt the company or cause irreparable injury. If the catastrophic risk is possible or likely, should we be involved in the project at all?
  2. We end up spending a lot of time thinking about negligible and marginal events that are unlikely. No one cares about these.
  3. We end up spending a lot of time thinking about catastrophic and unlikely events:, Tsunami, meteorite, war, locusts; events that we have no control over and cannot prevent. It may be the wrong focus and distract us from issues we should be addressing.
  4. This methodology focuses on the practitioner; not on identifying risks, but on filling in one risk for each of the categorizations. Instead, the focus should be on identifying and analyzing all potential risks, from all sources. Once a box is filled in, other risks that fit the categorization tend to be ignored.
 

 

Negligible Marginal Critical Catastrophic
Certain Small tool breakage and loss Equipment malfunction Non-payment of contract Death and Bankruptcy
Likely Loss of cell phone A physical injury on the job site causing missed work days Change orders in excess of anticipated budgetary constraints Death and Bankruptcy
Possible Loss of car keys Sprained ankle Strike, Government and Regulatory Issues Death and Bankruptcy
Unlikely Loss of a best friend Broken Ankle Crane falls over Bankrupt client and monetary loss
Rare Stomach ache Drunk and disorderly charges Hurricane destroys job site Death of worker

 

  1. The risks that we should focus on, and that is within our authority and ability to change, tend to be in the middle of the chart: Likely, Possible, Certain, and with at Marginal or Critical impact. There will likely be a number of these.
  2. There should be a category for significant impact, between marginal and critical. This is where most of our focus should be.
  3. Once all boxes are filled in, this matrix is difficult to read, further analysis is unlikely and there is no easy way to record further analysis. Other relevant information (such as the assignment of a person responsible for this risk) or even updates on this risk are hard to add on.
  4. Finally, studies have shown that risk matrices tend to produce arbitrary risk rankings. Rankings depend upon the design of the risk matrix itself, such as how large the bins are and whether or not one uses an increasing or decreasing scale. In other words, changing the scale can change the answer.

Solutions:

  1. Focus on the sources of risk to identify the possible risks that may occur, not categories.
  2. Identify all risks in a list. Once a relatively complete list of risks is identified, only then begin to analyze and categorize the risk.
  3. One format to achieve a better and more thorough risk analysis is a risk register. This form lends itself to a more complete definition of risks.
  4. Paper and slide rules went out with the ’60s. Adopt a digital tool, such as RiskMP, to record and analyze.
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