PMP Risk Management Part IV – Benefits of Project Planning

The article provides knowledge on the topic of Risk Management and helps in better preparation for exam.
In this article, we shall continue our focus on the PMBOK® knowledge of Risk management concepts.
Quantitative Risk Analysis
Perform quantitative risk analysis is the process of numerically analyzing the effect of identified risks on the project objectives.  This is typically performed on risks that are already prioritized by the qualitative risk analysis.  The process may be used to assign a numerical rating to each risk or assessing the overall impact of all risks affecting the project. 
The purpose of this process is to determine the risks that warrant a response, determine overall project risk, determine the quantified probability of meeting the project objectives, determine cost and schedule reserves and also aid in creating achievable cost schedule and scope targets.

  1. Further investigate the biggest risks in the project
  2. Determine the type of probability distribution that can to be used, triangular, normal, beta, uniform and so on
  3. Perform sensitivity analysis to determine which are the risks that have major impact
  4. Determine how much risk project has by expected monetary value or Monte Carlo analysis

Important tip for all exam seekers: Risk assessment is a term which is used often to refer to the process of quantitative identification of risks.  This should not be confused with risk urgency assessment, which is a part of perform Qualitative risk assessment process.
Determining Quantitative Probability and Impact
The following techniques may be used to determine probability and impact:

Monte Carlo analysis - Monte Carlo analysis is a tool-driven analysis, which uses the network diagram and estimates for work packages and project to simulate the cost and schedule results of the project.  In simple words, Monte Carlo calculates whether a project can be completed within its estimates.

  • Monte Carlo analysis is usually done with a computer-based program
  • Evaluates the overall risk, and probability of completing project within given cost and schedule
  • Determines the probability of any activity on the critical path
  • Path convergence (places in network path where many paths converge into one activity)
  • Translates uncertainties into impacts on the total project.

Expected Monetary value analysis - As the term suggests, EMV refers to the conversion of the probability and impact of a particular risk to a certain monetary value impact for the project.  In other words, this is probability of the risk event multiplied by Impact (EMV = P X I).

Decision trees - Decision Trees help you to choose between two alternatives by analyzing the impact of choosing one alternative over the other on the project.  They are models of real situations and help make informed decisions by considering all the associated risks, probabilities and impacts.

Important tip for all exam seekers: Some examples of decision trees have costs occurring only at the end of the project, whereas others have costs occurring at the early stages or in the middle of the project.  In either case, pay attention to the data in the question and not at the diagram or other details.
Outputs of Perform Quantitative Risk Analysis
Outputs include updates to Risk register, which include the following:

  1. Prioritized list of quantified risks
  2. Amount of contingency time and cost reserves needed to accommodate the risks
  3. Possible realistic achievements dates with confidence levels
  4. Quantified probability of meeting project objectives
  5. Trends in quantitative risk analysis

Important tip for all exam seekers: Remember that, qualitative risk analysis is subjective; a probability and impact number is assigned based on judgment, whereas quantitative risk analysis objectively defines the monetary impact.  Qualitative risk analysis must be done for all the projects irrespective of size, whereas the quantitative risk analysis is optional based on the available time and relative importance of project.
Please see the following two articles on remaining two risk management processes.

Rattan N Whig, PMP
The views presented in this article are solely my personal views.  I advise all the readers to exercise discretion while adopting any views listed in this article or anywhere in the other articles for their benefits.  Another important aspect is that, whenever there is a difference or conflict in information presented in these articles and those listed in PMBOK® guide or any other publication by the PMI® institute, the dispute must be resolved in favor of the information published by PMI® institute.

  • Disclaimer
  • PMP, PMI, PMBOK, CAPM, PgMP, PfMP, ACP, PBA, RMP, SP, and OPM3 are registered marks of the Project Management Institute, Inc.