Risk Management 11.4 Perform Quantitative Risk Analysis

 

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Risk Management 11.6 Monitor and Control Risks

Risk Management 11.5 Plan Risk Responses

Risk Management 11.4 Perform Quantitative Risk Analysis

Risk Management 11.3 Perform Qualitative Risk Analysis

Risk Management 11.2 Identify Risks

Risk Management 11.1 Plan Risk Management

Quantitative analysis numerically analyzes the probability of each risk and its consequence on project objectives. Sophisticated techniques such as Monte Carlo simulation and decision tree analysis are used to do the following.

·         Determine the probability that specific project objective can be met.

·         Quantify risk exposure so that cost and schedule reserves can be determined.

·         Identify which risks require the most attention.

·         Identify realistic cost, schedule and performance targets.

There may be instances in which quantitative analysis is not needed or is not worth the cost.

Perform Quantitative Risk Analysis
Inputs	Tools	Outputs
1.       Risk register 2.       Risk management plan 3.       Cost management plan 4.       Schedule management plan 5.       Organizational process assets	1.       Data gathering and representation techniques 2.       Quantitative risk analysis and modeling techniques 3.       Expert judgment	1.       Risk register updates

Five Key Inputs for Perform Quantitative Risk Analysis:

1.       Risk register: At this stem, the risk register provides a list of risks, risk priorities and risk categories (information from all the previous processes).

2.       Risk management plan: Again, the risk plan establishes roles and responsibilities, the budget and time to do the analysis, risk categories and stakeholder risk tolerance.

3.       Cost management plan: Provides the format and structure for handling cost-related information and issues.

4.       Schedule management plan: Provides the format and structure for handling schedule-related information and issues.

5.       Organizational process assets: Organizational Process Assets that can influence quantitative analysis include:

·         Information on previous, similar projects

·         Studies of similar projects by risk specialists

·         Risk database available from professional associations, industry groups or other proprietary sources

Three Key Tools for Perform Quantitative Risk Analysis:

1.       Data gathering and representation techniques: These techniques include:

·         Interviewing: Interviews with appropriate subject matter experts yield data requited to build provability distributions. A common approach is shown in this site, in which experts provide three estimates (low, most likely and high). This approach is very much like the PERT technique discussed in the time management area.

·         Probability Distributions: The outcome of interviewing in a probability distribution.

2.       Quantitative risk analysis and modeling techniques: Common techniques include:

·         Sensitivity Analysis: Also known as “what if” analysis, sensitivity analysis uses the power of the computer to examine the effects of variations in different project variables. For, example, if you vary the duration of a given task, what is the effect on project costs, quality and resource usage? Tornado diagrams may be used to assess the potential impact of highly uncertain variables on the rest of the project.

·         Expected Monetary Value Analysis: A statistical concept that calculates a long-term average outcome. EMV is quite simply multiplying the probability of an event by the dollar amount at stake. EMV analysis is often used in conjunction with decision trees. A decision tree is a diagram that depicts the interactions of possible events. The process yields the probabilities and/or expected monetary value of various possible outcomes.

·         Modeling and Simulation: Using data from subject matter experts, computer software program uses random number generators and input values from a probability distribution to simulate possible project outcomes.

Key points about simulations:

·         Most common form is Monte Carlo.

·         Can quantify a variety of potential risks, including schedule and cost.

·         Produces a distribution of possible outcomes with associated probabilities.

·         By comparison, PEPT and CPM analysis understate project duration because they cannot account for path convergence.

·         The results of a Monte Carlo simulation are significantly affected by the choice of statistical distribution.

3.       Expert judgment: Subject matter experts are needed to provide data and validate the results.

One Key Outputs for Perform Quantitative Risk Analysis:

1.       Risk Register Updates: The register is now updated with the following new information from quantitative analysis:

·         Probabilistic analysis of the project: A forecast of possible cost and schedule outcomes along with associated confidence levels. In order words, a probability distribution showing possible cost and schedule results.

·         Probability of achieving cost and time objectives: A quantitative analysis showing the probability of achieving the current project objectives (given the current knowledge of project risks).

·         Prioritized list of quantified risks: A list of risks that pose the greatest threat (or opportunity) for the project.

·         Trends in quantitative risk analysis results: If there are any trends in project performance, repetitive analysis will usually show them.