RMP_ Risk Analysis

Qualitative vs Quantitative Risk Analysis

Purpose of Qualitative Risk Analysis
Purpose of Quantitative Risk Analysis
Project Risk Qualitative and Quantitative Analysis
Program Risk Qualitative and Quantitative Analysis
Portfolio Risk Qualitative and Quantitative Analysis
Techniques for Qualitative Risk Analysis
Techniques for Quantitative Risk Analysis
Success Factors for Qualitative Risk Analysis
Success Factors for Quantitative Risk Analysis
Domain 2 - Exam context outline
Questions and answers

Qualitative vs Quantitative Risk Analysis

1. Qualitative risk analysis:
• Focus on high individual risks
• If management wants a quick and cost-effective way to
prioritize risks for response planning, use Perform Qualitative Risk Analysis.
2. Quantitative risk analysis:
• Next step after Qualitative risk analysis and you can’t move on to it unless you will do
qualitative risk analysis
• Simulate overall risk outcome (Very Important)
• combined effect of identified risks on the desired outcome

Purpose of Qualitative Risk Analysis

• Better understanding of individual risks
• Consider probability or likelihood and impact on the objectives, manageability, timing
of possible impacts, relationships with other risks.
• Not directly address the overall risk but to directly address to individual risks.
• Will be applied to the list of risks created or updated by the Identify
Risks process which define on risk register.
• Focus on high priority risk and highlighted to Plan Risk Responses process for it and it
might require Quantitative Risk Analysis.
• Perform Qualitative Risk Analysis requires accurate, unbiased, and credible data.
 Purpose of Quantitative Risk Analysis
• Numerical estimate of the overall effect of risk on the objectives.
• Results from this analysis are used to:
▪ Evaluate the likelihood of success in achieving objectives.
▪ Estimate any contingency reserves for opportunities and threats.
• Quantitative risk analysis is not always required or possible.
• During the Plan Risk Management process, we will decide if it’s required for
quantitative risk analysis or not based on benefits against effort required.
• If the question mentions maximum exposure, numbers, escalation level, threshold or
numerical impact based on impact/probability, think of Quantitative Risk Analysis.
• Probability of project success = probabilistic/quantitative overall analysis.

Project Risk Qualitative and Quantitative Analysis

The evaluation of risks at the project level is performed by taking into account the degree of
impact on the project output objectives and probability of occurrence.

Why are these analyses conducted?

To evaluate the impact can be contained within the limits of the project budget.
Can be managed through the project manager or not

Every risk impact that within the limits of accountability of project manager:
Project manager should deal with it through project risk management plan and strategy.
Risk address to project manager

Every risk impact that exceeds the limits of accountability of project manager:
is escalated to the appropriate governance level.

Program Risk Qualitative and Quantitative Analysis

Evaluation of the risks at the program level is performed by taking into account the depth of
each risk’s impact on the realization of the expected benefits or the development of the
expected organizational capability.

Why are these analyses conducted?

To evaluate the impact can be contained within the limits of the program budget.
Can be managed through the program manager or not

Every risk impact that within the limits of accountability of program manager:
Risk address to program manager
Every risk impact that exceeds the limits of accountability of program manager:
is escalated to the appropriate governance level such as enterprise or portfolio domain.
 Portfolio Risk Qualitative and Quantitative Analysis
The evaluation of risks at the portfolio level is performed by taking into account the impact
of risks on the realization of the expected business performance or the execution of the
organizational strategy.

Why are these analyses conducted?

To evaluate the impact can be contained within the scope of the portfolio manager
accountability.
Can be managed through the portfolio manager or not

Every risk impact that within the limits of accountability of portfolio manager:
Risk address to portfolio level in an operational manner.

Every risk impact that exceeds the limits of accountability of portfolio manager:
is escalated to the appropriate higher governance level.

Techniques for Qualitative Risk Analysis

Affinity diagram
It helps to sort risks by similarities and categories.

Analytic hierarchy process (AHP)

Is a matrix method-based technique used to support a multicriteria decision-
making process.

Nominal group technique

• Is an adaptation of brainstorming where participants share and discuss all issues
before evaluation.
• Encourages and allows all participants to contribute
• Relay as well on voting.

Nominal group technique vs Brainstorming

Risk probability and impact assessment

• We will hold each risk individually has been identified in the risk register and going to
check the probability and impact which may impact (negative for threats and positive
for opportunities) one or more project objectives such as schedule, cost, quality, or
performance.
• Risks can be assessed in interviews or meetings with participants who are familiar with
the types of risk recorded in the risk register.
Risk data quality assessment
• Review of the reliability and sufficiency of the data ensures that the analysis is based on
high-quality information, we will use this data on probability and impact matrix.
• To evaluate the degree to which the data about risks is useful for risk management.

Probability and impact matrix

• A probability and impact matrix allows the user to prioritize risks for
further analysis or responses.
• It helps to distinguish between those risks that will have a minor impact
on business activities and those that will have a major impact.
• It usually classifies risks according to their impact probability, such as
very high, high, moderate, low, and very low.

Interviews
• Used to assess the probability and impacts of individual project risks and other factors.
• Used for confidential information to encourage honest and unbiased assessments.

Risk Categorization
• Risks to the project can be categorized by sources of risk such as RBS, WBS, project
phase, to determine the areas of the project most exposed to the effects of uncertainty.
• Categorized by common root causes.
• Grouping risks into categories can lead to the development of more effective risk
responses.

Expert judgment (might be project manager, team, stakeholders, PMO)

Expertise can help us by using them knowledge or training in the following topics:
• Previous similar projects such as identify risk, perform analysis and so on.
• Qualitative risk analysis

Outputs of performing Qualitative Risk Analysis

Update Risk Register.
✓ Assessments of probability and impacts for each individual project risk
✓ Risk categorization
✓ Risk urgency information (focus in the risk will happen soon so its required to plan for it a
risk response)
✓ A watch list for low-priority risks
✓ Risks requiring further analysis (focus of the risk which required to do quantitative risk
analysis)
✓ Priority level (very high, high, medium, low, very low)
 Techniques for Quantitative Risk Analysis
Decision tree analysis
• It is a tree-like model that calculates the Expected Monetary
Value of different possibilities by probability of occurrence.
• EMV = Probability * Impact
• Choosing the best option among multiple alternatives based on
costs, probabilities, several quantifiable factors think of
Decision Tree Analysis.

Expert judgment
Expertise can help us by using them knowledge or training in the following topics:
• Translating information on individual project risks and other sources of uncertainty into
numeric inputs for the quantitative risk analysis model
• Modeling techniques that are appropriate in the context of the project.
• Identifying which tools would be most suitable for the selected modeling techniques.

Expected Monetary Value

Is a statistical technique in risk management used to quantify risks and calculate the
contingency reserve.

Monte Carlo Simulation

• A project simulation uses a model that translates the specified detailed uncertainties of
the project into their potential impact on project objectives.
• Computer software is used to iterate the quantitative risk analysis model several
thousand times.
• The input values (e.g., cost estimates or duration estimates) are chosen at random for
each iteration.
• The output will be the probability of achieving specific cost targets as below
example:
Ex: the probability of achieving the cost estimate of US$41 million is about 12%.
• Monte Carlo Schedule Analysis must include activity relationships/dependencies and
dependencies show how delay in one activity affects related activities then it will help
to increase the probability of correlated activities finish on time.

Sensitivity Analysis
• Sensitivity analysis helps to determine which risks have the most potential impact on
the project objectives or project outcome.
• Helps to Determine the correct priority of every identified risk.
• Helps to avoid the conflicts between stakeholders while choosing which risk to take
through positive and negative impact.
• Equal priority for all risks is wrong, because not all risks have the same impact.
• Do not treat all risks with the same priority; priority depends on the degree of impact.
 Success Factors for Qualitative Risk Analysis

Use agreed approach

During Plan Risk Management, there are more factors other than Probability and Impact to
improve the prioritization of threats in Qualitative Risk Analysis such as Urgency,
manageability, Proximity, Detectability

Use agreed definitions of risk terms

Collect credible information about risks

Perform iterative qualitative risk analysis

 Success Factors for Quantitative Risk Analysis
Prior risk identification and qualitative risk analysis

Appropriate model

Competence with the corresponding technical analysis tools

Commitment to collecting credible risk data

Interrelationships between risks in quantitative risk analysis

Unbiased data
 Domain 2 - Exam context outline
• Qualitative = prioritize risks.
• Quantitative = calculate numerical impact.
• Threats and Opportunities = identify what may harm or help the project.
• Risk Matrix = qualitative.
• Monte Carlo / EMV / Decision Tree / Sensitivity = quantitative.

Questions and answers