1. Introduction
The five risk-related project management processes in the Planning Process Group deal with setting up the Risk Management Plan (process 11.1), identifying (process 11.2), analyzing (processes 11.3 and 11.4), and then developing responses for risks to the project (process 11.5).
This post is devoted to the Inputs, Tools & Techniques, and the Outputs of the fourth of these five processes, 11.4 Perform Qualitative Risk Analysis.
2. Inputs
The main inputs comes from the risk management plan, the framework set up as part of process 11.1 for all risk management activities on the project, the cost and schedule management plan, which contain guidelines on establishing and managing risk reserves, and the risk register.
In particular, the Risk Management Plan should contain the guidelines, methods and tools the organization will use during the process of quantitative risk analysis. The risk register contains not only the risks at this point, but the impact, probability, and urgency of each of those risks, which together create the risk ranking. Once the risks are ranked in the qualitative risk analysis, this next process takes the analysis to a whole new level by quantifying the impact of each risk in terms of its effect on the cost and schedule of the project.
Finally, information from industry sources or from the organization itself on risks involved in similar projects may also be useful for this process.
| 11.4 PERFORM QUANTITATIVE RISK ANALYSIS | ||
| INPUTS | ||
| 1. | Risk Management Plan | The key elements of the Risk Management Plan used in this process are the guidelines, methods and tools to be used in quantitative risk analysis.
These elements are normally developed during process 11.1 Plan Risk Management. |
| 2. | Cost Management Plan | This contains guidelines on establishing and managing risk reserves. |
| 3. | Schedule Management Plan | This contains guidelines on establishing and managing risk reserves. |
| 4. | Risk Register | This contains the impact, probability, urgency of all risks, which together combine to give the risk ranking of each risk. |
| 5. | EEFs |
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| 6. | OPAs |
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| TOOLS & TECHNIQUES | ||
| 1. | Data gathering and representation techniques |
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| 2. | Quantitative risk analysis and modeling techniques |
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| 3. | Expert judgment | Expert judgment is often used to determine the potential impacts of various risks on the cost and schedule, |
| OUTPUTS | ||
| 1. | Project Documents Updates | Risk register–n addition to the list of risks created in process 11.2 and their risk ranking done in process 11.3, the following information is added:
The above information may be included as a separate Quantitative Risk Analysis Report. |
3. Tools & Techniques
For data gathering and representation techniques, interviewing is the main form of data gathering, specifically with regard to quantifying both the probability and the impact of the risk. When this data is gathered , it is analyzed by use of representation techniques such as probability distributions that are tailored to the type of data being presented.
The main number-crunching in this process comes with quantitative risk analysis and modeling techniques, the first of which is sensitivity analysis. This means determining which risks have the most potential impact on the project. If there are risks which may occur at various points in the project, expected monetary value or EMV analysis can analyze what the impact on the project would be if certain scenarios do or do not happen.
As opposed to these uncertainties that are analyzed on a “retail” level, the large-scale or “wholesale” level of analyzing uncertainties is done through modeling and simulation, the most common example of which the Monte Carlo technique, which simulates various combinations of events that may or may not occur during the course of the entire project. The aim is to estimate the impact of the risks of a project on its overall cost and schedule.
Expert judgment is not a tool, of course, but a technique for deciding not only which tool to use, but what the inherent strengths and weaknesses are of these tools, and therefore which might best be applied to the specific project at hand.
4. Outputs
As with all of the risk management planning processes, the risk register is a place where the risks identified in process 11.2 will have more and more information attached to them in the course of processes 11.3-11.5. In the case of this process 11.4, Perform Quantitative Risk Analysis, the following results are added to the risk register.
a., b. Probabilistic analysis of the project, probability of achieving cost and time objectives
Rather than saying the project will be done for such-and-such cost by such-and-such a date, this most nuanced analysis shows that the project will be done for a certain amount of money and will take a certain amount of time within a certain confidence level. For example, you can say that the project has a 90% probability of being be done for up to $1M and within six months.
c. Prioritized list of quantified risks
Now the risk ranking created as an output of process 11.3 is amended to include the quantified impact of each of these risks.
d. Trends in quantitative risk analysis results
Are there any patterns that show up repeatedly in the quantitative analysis of risks on the project? If so, these may be added to the “lessons learned”, so they eventually become part of the “historical information” for similar projects that may be done in the future.
The posts next week will go into some detail regarding the tools & techniques of this process of Performing Quantitative Risk Analysis.
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