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Sunday, January 20, 2013

Introduction to Quantitative Risk Analysis

We have successfully completed Qualitative Risk Analysis and updated the Risk Register. The next step would be Quantitative Risk Analysis. This section is dedicated to look in great detail about the Quantitative Risk Analysis process.

Quantitative Risk Analysis:

In the previous section on “Qualitative Risk Analysis” we prioritized risks and came up with a list of risks that are high priority and require additional analysis. Well, in Quantitative Risk Analysis, we are going to focus on those risks. The purpose of Quantitative analysis is to assign a numeric rating to the risk. This will help the risk management team to numerically analyze the risk which will aid them in the decision making process.

If you have already prepared for the PMP Exam or are PMP Certified, you must know by now that Quantitative analysis is the 4th process in the PMBOK Guides coverage of Risk Management. If you do not remember this, then I suggest you revisit the chapter titled Big Picture of Risk Management in our PMP Certification study series.

According to the PMBOK guide, we will analyze all those risks that potentially and substantially impact our project and our project objectives. Risks that have higher impact on our project with a higher probability of occurrence are those that we need to concentrate on.

While Qualitative Analysis is quick and cost effective, Quantitative analysis can be more time consuming and costly. Depending on the size of our project, the time and effort/cost we need to spend in this step (Quantitative Analysis) will vary. In some smaller projects, we may ignore this step altogether because it may not be prudent or feasible to spend that much time or resources in this activity. However, in most cases, a feasibility analysis or a cost benefit analysis is undertaken to decide whether to proceed with Quantitative analysis or not.

As you might have guessed by now, performing quantitative analysis can be very useful because it helps us make informed decisions in uncertain circumstances. So, if you have the time and resources to take up this step, it is advisable to perform Quantitative Risk Analysis.

Before we dig into the details of Quantitative Risk Analysis, let me repeat something that I have said multiple times. This step is not done only once after Qualitative Analysis. It is repetitive and may be required to be taken up after the “Develop Risk Responses” step or the “Monitor & Control Risks” step. At the end of day, we need to have as much information as possible about the risks that may impact our project and the only way to accomplish that is by thorough analysis.

Prev: Updates to Risk Register - After Qualitative Analysis

Next: Inputs Used in Quantitative Risk Analysis

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