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Sunday, February 10, 2013

Tools and Techniques used in Quantitative Risk Analysis - An Introduction

In the previous chapter, we took a detailed look at the Inputs that we will be using in our Quantitative Risk Analysis activity. So, just like any other process, when we have a bunch of inputs, we apply some tools and techniques on them in order to accomplish the task that we started. 

The Perform Quantitative Risk Analysis activity has two groups of tools & techniques. They are: 

a. Data Gathering & Representation Techniques 
b. Quantitative Risk Analysis & Modeling Techniques 

An important consideration here is that, Expert Judgment is used throughout quantitative risk analysis. It validates all the data and techniques used by this process. It includes information gathered from both internal and external Subject Matter Experts (SMEs). Since Expert Judgment essentially uses the manager’s expertise, we won’t be considering that as an explicit tool or technique. 

Data Gathering & Representation Techniques: 

The title of this group of techniques is self-explanatory. It clearly explains what we are planning to do with these tools or techniques. We will be gathering all the data that we will require or rather all the data that will help us with our quantitative analysis activity. These include: 

a. Interviewing & 
b. Probability Distributions 

Probability Distributions in itself include: 
1. Continuous Distributions
2. Discrete Distributions 
3. Uniform Distributions and
4. Other frequently used distributions like Beta or Triangular distributions. 

Quantitative Risk Analysis & Modeling techniques

In this group of techniques, we will be working on the data gathered using the previous set of tools & techniques. The purpose here is to get a clearer picture of the impact that certain risks will have on our project and its competing objectives. These include: 

1. Sensitivity Analysis
2. Expected Monetary Value Analysis 
3. Modeling & Simulation 

I have just listed down these tools/techniques above and haven’t said anything more about them. This is because, the following few chapters will touch upon each of these in great detail. In the following chapters we will learn the following about each of these tools and techniques: 

a. The purpose of each technique
b. What it is used for
c. What information is needed and
d. How results are displayed 

A very common question that almost every new project manager has is “What Technique to use and When/Where?” This is very hard to answer considering the fact that each and every project could have its own complexities. Different projects may have needs/risks. For smaller projects with little or no risks, a majority of the analysis activities can be skipped while for large & complex projects, we may have to perform as much analysis as possible to ensure that we are well prepared for any risk that may affect our project. 

At the end of Quantitative Analysis, if you are unable to numerically quantify or rate a risk, then it means that additional analysis is required. It would be a good idea to go back and re-analyze those risks to ensure that we have a clear-cut idea of what we are dealing with. 

Some Last Words: 

Quantitative Risk Analysis is a very complex topic. In this blog, we will be covering only what is required for you to learn/understand from the PMI RMP Exam perspective. This is not an exhaustive resource on quantitative risk analysis. If you want to learn more about quantitative analysis, you can try to pick up one of the many books that specialize in Risk Analysis. 

Prev: Inputs Used in Quantitative Risk Analysis

Next: Interviewing

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