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Qualitative risk analysis happens throughout the project. As new risks become evident and identified, the project manager should route the risks through the qualitative risk analysis process. The end results of qualitative risk analysis are:
Overall risk ranking of the project
The overall risk ranking of the project allows the project manager, management, customers, and other interested stakeholders to comprehend the risk, the nature of the risks, and the condition between the risk score and the
The risks in the project can be prioritized by their score, their rank of high, medium, or low, or by their WBS
Identification of risks requiring additional analysis The risks categorized as high will likely need additional analysis, such as quantitative analysis. Some risks may demand immediate risk management based on the nature of the risks and the status of the project.
Trends in qualitative analysis
As the project progresses and risk analysis is repeated, trends in the ranking and analysis of the risk may become apparent. These trends can allow the project manager and other risk experts to respond to the root cause and
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Quantitative risk analysis attempts to
Qualitative risk analysis typically precedes quantitative analysis. All or a portion of the identified risks in qualitative risk analysis can be examined in the quantitative analysis. The performing organization may have policies on the risk scores in qualitative analysis, which require the risks to advance to the quantitative analysis. The availability of time and budget may also be a factor in the determination of which risks should pass through quantitative analysis. Quantitative analysis is a more
To ascertain the
To ascertain the likelihood of reaching a particular project objective
To determine the risk exposure for the project
To determine the likely amount of the contingency reserve needed for the project
To determine the risks with the largest impact on the project
To determine realistic time, cost, and scope targets
Quantitative risk analysis relies on hard
Based on the time and budget allotments for quantitative analysis, as defined in the risk management plan, the project manager can move into quantitative analysis. There are, however, seven inputs to quantitative risk analysis the project manager should rely on:
Risk management plan The risk management plan identifies the risk management methodology, the allotted budget for risk analysis, the schedule, and the risk scoring mechanics—among other attributes.
Identified risks The risks that have been identified and promoted to quantitative analysis are needed.
Prioritized risks The risks as ranked by weight, priority, or WBS component will need to be readily available. This information can offer significant information for the quantitative analysis of the risks, reveal trends among the risks, and show those risks that require the most attention.
List of risks
Similar projects will likely have similar risks. The history of how the risks were managed, mismanaged, or
Individuals, other project
Other planning outputs These include the cost and schedule estimates, documented logic of project decisions, scheduling information, and information on the technical attributes of the project.
Interviews with stakeholders and subject matter experts can be one of the first tools to quantify the identified risks. The interview can focus on worst-case, best-case, and most-likely scenarios if the goal of the quantitative analysis is to create a triangular distribution; most quantitative analysis, however, uses continuous probability distributions. Figure 11-6 shows five sample distributions: normal,
Figure 11-6: Distributions
Continuous probability distribution is an examination of the probability of all possibilities within a given range. For each variable, the probability of a risk event, and the corresponding consequence for the event, may vary. In other words, dependent on whether the risk event occurs and how it happens, a reaction to the event may also occur. The distribution of the probabilities and impact include:
Don’t invest too much time on knowing these distribution types for the exam. The questions on quantitative analysis will focus on more accessible
Sensitivity analysis examines each project risk on its own merit. All other risks in the project are set at a baseline value. The individual risk then is examined to see how it may affect the success of the project. The goal of sensitivity analysis is to determine which individual risks have the greatest impact on the project’s success and then to escalate the risk management processes on these risk events.
A decision tree is a method to determine which of two decisions is the best to make. For example, it can be used to determine buy-versus-build scenarios, lease-or-purchase equations, or whether to use in-house resources rather than outsourcing the project work. The decision tree model examines the cost and benefits of both decision
The purpose of the decision tree is to make a decision, calculate the value of that decision, or to determine which decision costs the least. Follow Figure 11-7 through the various steps of the decision tree process.
Figure 11-7: Decision trees analyze the probability of events and calculate decision value.
As the project manager of the new GFB Project, you have to decide whether to create a new web application in-house or send the project out to a developer. The developer you would use (if you were to outsource the work) quotes the project cost at $175,000. Based on previous work with this company, you are 85 percent certain they will finish the work on time.
Your in-house development team quotes the cost of the work as $165,000. Again, based on previous experience with your in-house developers, you feel 75 percent certain they can complete the work on time. Now let’s apply what we know to a decision tree:
Buy or build is simply the decision
The cost of the decision if you “buy” the work outside of your company is $175,000. If you build the software in-house, the cost of the decision is $165,000.
Based on your probability of completion by a given date, you apply the 85 percent certain to the “strong” finish for the buy branch of the tree. Because you’re 85 percent certain, you’re also 15 percent
The value of the decision is the percentage of strong and weak applied to each branch of the tree.
The best decision is based solely on the largest value of all possible decisions.
Project simulations allow the project team to play “what-if”
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