Quantitative Risk Analysis
Analyzes of risk in projects is essential and it can be either qualitative or quantitative risk analysis. The latter said is an arithmetic method using some math computation to ascertain risk. This will approximate the by and large consequence of risk on the goal of the project. The calculation is carried to find the result and this assesses the possibility of project success. This will help to make an emergency reserve for the successful completion of the project.
In this blog let us study in detail how to perform, why to perform, and when to perform quantitative risk analysis. You may want to know things in practice, then register for PMP training and carry our risk analysis in real.
Top 3 Scenarios to Perform a Quantitative Risk Analysis
1. It is a must to perform quantitative risk analysis for projects that require an emergency reserve for time and money.
2. Every large project and complex project requires the right decision making and hence analyzing the risk is a must.
3. All details big or small to be captured requires risk analysis to estimate the possibility of project completion well within time limits and budgets.
How to Perform Quantitative Risk Analysis
With the help of the 5 inputs mentioned below one can perform the analysis. Let us see them one by one.
1. Risk register – This is a collection of all the risks identified till time with details about their records and responses.
2. Plan register – Here the plan devised to manage the said risk is documented. For instance, based on the level of the risk it has to be managed. Therefore there is no one way to manage risk.
3. Plan schedule – Next plan for the timings as risk concerned with time can be quantified easily with this process.
4. Plan cost – Likewise plan for cost management so that in case of any risk involved due to cost it can be used as an input to perform quantitative risk analysis.
5. Process assets – This will include all the risk templates, policies, procedures, etc.
Quantitative Risk Analysis Method Using Tools
1. Using tools like probability distribution where the data is presented in a table form or graphical form the likelihood of occurrence of risk is calculated. When a table is formed it becomes easy to check for the probability of certain risk occurrence and the level of impact it will cause. Similarly, the graphical representation is even easier to visually analyze the risk level and its effect on the project. While a positive impact can be encouraged and negative effects to be eliminated.
2. Data gather and representing tools are used to collect the data and calculate the effect of risk with the help of SMEs. The PMP certification training online will teach the project manager to collect data from each expert with optimistic, realistic, and pessimistic possibilities. So that the effect of the risk can be identified accordingly. This method is called a 3 point estimate. In this type, all three possibilities are checked with each key stakeholder to conclude whether a particular risk is positive or negative to the project.
3. Modeling techniques use tools like sensitivity analysis, expected monetary value analysis, decision tree analysis, tornado diagram, etc. Find a detailed explanation of Decision tree analysis below. Each method has its plus and minus which we can discuss in a separate blog.
Quantitative Risk Analysis Example – Decision Tree Analysis
It is a flow diagram with a rectangle representing each node and it will contain the risk aspect description and its cost. The rectangles are connected with arrows and the other ends of arrows connect to another box which will contain the probability percentage. The total is calculated at the end by multiplying the risk cost and the probability. This is then added to the initial cost. Every decision can have a positive or negative impact which is written in the box and each node is connected to the boxes with alternatives.
Calculate the risk involved in building or buying new software or remaining with the legacy software
• Building new software involves a cost X and if the deployment is successful then the risk is 0 but for an unsuccessful deployment, the risk is involved. The percentage of loss is calculated based on the cost of investment and the failure rate.
• Likewise, buying new software involves a cost Y and if the deployment is successful then the risk is 0 but for an unsuccessful deployment, the risk is involved.
• Staying with the legacy software will involve no risk and business growth is assured.
Based on the above analysis stepwise the company can opt for building software, buying new software, or retaining the same software. Thus decision analysis is easy yet effective to opt for an optimum solution minimizing or eliminating risk whichever possible.
PMP certification course online to carry out hands-on decision tree analysis for identifying and arresting risks in a project.
Need to Perform a Quantitative Risk Analysis
While we explained how to perform a quantitative risk analysis, now we must also understand the need for analysis. This will not only convince you to proceed with the analysis but also to do it correctly and save the time of cost of the project.
• Quantitative risk analysis offers data specific to objective information and hence it is a must to carry out this when compared to qualitative risk analysis.
• It is possible to estimate the duration of the project using a quantitative method using numerical calculations
• A mathematical analysis of risk will precisely point out the likelihood of the occurrence of risk in a project and its impact. Therefore it is important to adopt this method for high-cost projects.
PMP certification is offered for those who learn all the best project management practices. This can be achieved by attending a training that covers all topics related to project management. Specially to understand quantitative risk analysis it is required to work out on several calculations and hence a training with practical experience will help.