Answer

Procedure for computation of Risk Matrix

Risk assessment matrix developed (see attached) as a project management tool permits a quick view of the probable risks assessed with regards to likelihood or possibility of the risk and the rigorousness of the consequences in a single page (Barki and Suzanne, 2001). In this example, risk associated with upgrade of current infrastructure of an organization was developed. As witnessed in the example, risk assessment matrix are easier to create. Easier creation is possible since the greater information required can be effortlessly extracted from the risk evaluation forms. In this example, a number of components needed for upgrade of the network was identified. Among these are Buyer; Clarity of definition of requirements, presentation and approach to market, internal relationships and barriers to use particular suppliers. Suppliers; Production process, capacity and supply chains, competing demands from different buyers, commercial and financial capability. Relationship: Contractual allocation of risks, Cultural fit and associated skill sets on both sides to manage the relationship, Performance management arrangements. External business environment; Fluctuations in currency, interest rates, and raw materials costs. Freight and logistics in respect to the physical and natural environment and regulation and compliance 

The risk model is made in the shape of a simple table. In the table, risks are grouped regarding their likelihood and severity of the damages or the kind of consequences resulted from the risk.

Risk matrix creation is the second step in risk management, preceded by the first step, which, entails filling up a risk assessment form to define the potential danger (Carbone and Tippett, 2004). The groundwork for risk assessment forms is a more intricate task and involves the determination of risks, collecting risk data, assigning the probability and the damage levels of the risks, understanding and evaluation of consequences, allocating priorities and increasing risk prevention strategies.

A risk assessment matrix risks are located in the form established by two criteria (Linkov et al. 2006):  Likelihood: which is the probability of a risk and the consequences, which is the severity of the impact or the extent of damage caused by the risk; and consequence.

In the likelihood of occurrence; the risk is classified under either category: definite that is a risk that is likely to show-up during project execution. This contains risk with more than 80%.  Likely are those risks that have 60-80% probabilities of incidence can be assembled as likely. Occasional are those that are nearly 50/50 possibility of occurrence. Seldom are risks having a small chance of happening but still cannot be ruled out entirely. Unlikely are rare and exceptional risks and is less than 10% chance of happening.

In consequences, risk can fall in either the following category.  Insignificant are those risk that will stir a nearly negligible amount of harm to the general development of the project. Marginal are those that results in some loss, but the extent of damage is not too substantial and is not perspective enough to make much of a variance in the inclusive growth of the project. Moderate are those risks which do not enforce a great danger, but yet a substantial loss can be categorized as moderate. Critical are those risks with meaningfully larger penalties which can lead to an unlimited amount of loss. Catastrophic are those that are entirely fruitless and unproductive, consequently has to be a top priority during risk management. 

In similar capacity, project team often evaluate each risk factor based on the recommendations from the interviews conducted. Consequently, the likelihood ratings of each risk component can be arrived at. For instance, in the example, the probability of destruction of external relations of the organization in a case where the procurement network is not upgraded can be graded differently with every interview. The magnitude of each risk is based on the rating score from interviews.

ns