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Sunday, February 10, 2013

Inputs Used In Quantitative Risk Analysis

In the previous chapter, we took a high level introductory look at Quantitative Risk Analysis. Next, we are going to look at the inputs that we will be using in this process.

The inputs that we will utilize for performing Quantitative Analysis are:

1. Risk Register
2. Risk Management Plan
3. Cost Management Plan
4. Schedule Management Plan &
5. Organizational Process Assets

If you are someone who is still using the 3rd edition of the PMBOK guide you will find some major differences between the guide and what you are seeing above. First off, the 3rd edition just lists the Project Management Plan as an input while the 4th edition (Which I am following & strongly urge you do too) splits them up and lists down the individual plans. In fact, the 3rd edition lists down the Risk Register & the Risk Management Plan as separate inputs while they too are part of the Project Management Plan.
Let us now take a detailed look at each of these items…

Risk Register

In one of our previous sections, we took a detailed look at the Risk Register. To refresh our memory, the Risk Register contains all the information about the risks we have identified so far. Almost all the information in the risk register will be useful for our analysis but, from a quantitative analysis perspective, we will focus especially on:
a. Risks set aside for Additional Analysis &
b. Risk Categories used

I have said this numerous times but let me repeat – Remembering how each item will be used for a certain activity/process will help you remember them because, if you know what it is used for and when it will be used, you can relate to it better. So, don’t just try to memorize the inputs, try to understand them.

Risk Management Plan

The Risk Management Plan, as we all know is the heart of all Risk Management activities in our project. During quantitative risk analysis, we will use the following elements of our Risk Management Plan:

a. Risk Management Methodology
b. Roles & Responsibilities
c. Budgets available
d. Timing Information
e. Risk Categories
f. Risk Breakdown Structure
g. Stakeholder Risk Tolerance
h. Reporting Formats

As you might remember from our earlier section that was dedicated to the Risk Management Plan, the plan actually contains a lot more information that what is listed above. If you can’t remember all of them, you can go back to that section to review them once again.

From a layman perspective, the Risk Management Plan is the background and the Risk Register is the front & center of our quantitative analysis.

Cost Management Plan

The Cost Management Plan provides the necessary information we need to establish the criteria for controlling the project costs. Before we can numerically analyze the risks, we need to analyze and identify the best approach possible. We can use the cost management plan to select the best structure and techniques that will suit our project, from the ones available. Without the Cost Baseline information (which is present inside the cost management plan) taking this decision could be very difficult.

We can also use the cost management plan to analyze the numeric impact of the risks that we have identified on our project’s costs.

Schedule Management Plan

The Schedule Management Plan provides the necessary information we need to develop and control the Project’s Schedule. It will help us develop controls on how we will approach or rather handle our Project’s schedule. Things like the overall schedule, network diagrams etc. will be required to understand the impact that the risks we have identified will have on our Project.

Think of a scenario where we have uncovered a potential positive risk that can help reduce the project schedule by 3 months and improve profits by 25%. Would you want to pass-up on an opportunity like that? I am sure your answer would be, No Way. I would want to capitalize on the opportunity. This is exactly where Quantitative Analysis comes into picture. If you have all your facts readily available about the threat or the opportunity, we can take better informed decisions.

Organizational Process Assets

Organizational Process Assets are used as input to almost every single activity that you may take up as part of Project Management or Risk Management. So, it is no wonder that you see it here as well. We will use the following items from the Organizational Process Assets during Quantitative Risk Analysis:

a. Information from previous similar projects, including actual outcomes and risk analysis performed
b. Techniques used, lessons learned etc.
c. Studies of similar projects conducted by Risk Specialists
d. Industry or Proprietary Risk Databases

Items c & d, may or may not be available for everyone but if your organization uses proper Project Management processes, items a & b should be readily available. Using these can help save time as well as improve the efficiency of our current activities.

Though not explicitly listed as an input to Quantitative Analysis, the Project Scope statement gives us the boundaries of what the project is supposed to accomplish. We need to keep this in perspective to ensure that we do not deviate from our boundaries while performing our Risk Management activities.

Prev: Introduction to Quantitative Risk Analysis

Next: Tools & Techniques in Quantitative Analysis

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