Take a Risk (Part 2)

 

In the first installment of this two-part series, we looked at risk management planning, risk identification and qualitative risk analysis. In this installment, we continue with a look at quantitative risk analysis, risk response planning and risk monitoring and control.

Quantitative Risk Analysis

The main objective of the quantitative risk analysis process is to develop an objective and numerical assessment of the risks facing a project. This process helps you calculate an actual probability number as well as quantify the magnitude of the impact of the risk in terms of time or money units. This quantification process is performed by using a Monte Carlo simulation to calculate the probability of completing the project by various dates, sensitivity analysis to determine which variables have the greatest impact on project results, or decision-tree analysis to calculate the time and cost impact of taking a series of decisions.

How does this impact your project? This process adds two important elements to your project planning process. The first is the results of the probabilistic analysis which provides decision-makers with data on the probabilities of hitting various cost and schedule targets, taking into account the various options and decision paths available to the organization. The second is the concept of expected value, which is derived by multiplying the …

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