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QUANTIFY the RISKS
The process of Quantifying the Risks takes Risk Management one step further than Qualifying Risks. The primary purpose for Qualifying and Quantifying Risks is to plan appropriate Risk Responses. After Qualifying the Risks you likely have enough information to proceed directly to Planning Risk Responses. The additional step of Quantifying the Risks is very time consuming, and requires special software. As such it is reserved for the most risky projects, and often not used.
This page discusses Quantifying the Risks. We will look at what it is, what is provides, and how to use this process.
1. WHAT IT IS
Whereas Qualifying the Risks is a Risk Management process aimed at prioritizing individual Risks viewed one at a time, Quantifying the Risks recognizes the combined effect of individual Risks which may effect project outcomes differently than simply considering each Risk individually. It uses probability curves and simulation modelling, not found in Qualitative risk analysis, to predict outcomes.
2. WHAT IT PROVIDES
Quantifying the Risks provides a numerical estimate of the impact of each Risk. In addition, it provides an numerical estimate of the overall impact of the Risks on the goals and objectives of the project. When we come to Planning Risk Responses, this numerical estimate is used to determine amounts to put into contingency reserves. Quantitative risk analysis shows us which components of the project contribute most to Risk when considered together.
3. HOW TO USE IT
First Qualify the Risks on each individual Risk, at the level of detailed tasks or line-item costs.
Select the project model to use. Commonly, Project Schedule or Line-Item Cost estimates are used.
Collect very good Risk data through interviews and workshops.
Ensure the Risk data is unbiased.
Run the appropriate Simulation Tool.
Repeat the simulation at various stages throughout the project.
Use the simulation output to determine the amounts of contingency reserves.
Place the contingency reserves into the Schedule and Budget
Monte Carlo simulation is appropriate for Time or Cost. A Decision Tree is appropriate for Cost or Value.
Comparison Table of
Qualify and Quantify
Click Button for Tools to help you Quantify the Risks
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