Project Risk Management - Perform Quantitative Risk Analysis

This process numerically analyzes the effect of identified risks on overall project objectives. It produces quantitative risk information to support decision making in order to reduce project uncertainty. The risks reviewed in this process are ones that have been prioritized by the Perform Qualitative Risk Analysis process and this process analyzes the effect of those risks on project objectives.

This process also is used to assign a numerical priority rating to those individual risks.

This process should be repeated as needed as trends may indicate the need for more or less focus on appropriate risk management activities.

Let's take a look at the Inputs, Tools and Techniques and Outputs of this process.

1) Project Management Plan

• The Risk Management Plan provides guidelines, methods, and tools to be used

2) Cost Management Plan

• Provides guidelines on establishing and managing risk reserves

3) Schedule Management Plan

• Provides guidelines on establishing and managing risk reserves

4) Risk Register

• Used as a reference point 

5) Enterprise Environmental Factors

• May include:
• Industry studies of similar projects by risk specialists
• Risk databases

6) Organizational Process Assets

• Includes information from prior, similar, completed projects

7) Data Gathering and Representation Techniques

• Interviewing - draws on experience and historical data to quantify the probability and impact of risks on project objects 
• Three point estimates = outlines in a chart the cost of a WBS element and identifies the cost (low, most likely and high) 
• Probability distributions -
• Continuous probability distribution - used extensively in modeling and simulations, represent the uncertainty in values such as durations of schedule activities and costs of project components. 
• Discrete distributions - use to represent uncertain events, such as the outcome of a test or possible scenario in a decision tree. 
• Beta and triangular distribution - depict shapes that are compatible with the data typically developed during the quantitative risk analysis. 

8) Quantitative Risk Analysis and Modeling Technique

• Techniques for both event-oriented and project oriented analysis includes:
• Sensitivity analysis - helps to determine which risks have the most potential impact on the project and how variations in project's objectives correlate with variations in different uncertainties. 
• Tornado diagram - special type of bar chart used to compare the relative importance of the variables. Y-axis = the of uncertainty at base value and X-axis is the spread or correlation of the uncertainty to the studied output. 
• Expected monetary value analysis  (EMV) - a statistical concept that calculates the average outcome when the future includes scenarios that may or may not happen. Opportunities are positive values and threats are negative values. A decision tree is most commonly used
• Modeling and simulation - Project simulation uses a model that translates the specified detailed uncertainties into their potential impact on project objectives. 
• Monte Carlo simulation - a process which generates hundreds and thousands of probable performance outcomes based on probability distributions for cost and schedule on individual tasks. The outcomes are then used to generate a probability distribution for the project as a whole. 
• Click here for an example

9) Expert Judgment 

• Is required to identify potential cost and schedule impacts and to define inputs such as probability distributions into the tools. They can also help interpret the data. 

10) Project Document Updates

• Updates to the Risk Register may include:
• Probabilistic analys of the project 
• Probability of achieving cost and time objectives 
• Prioritized list of quantified risks
• Trends in quantitative risk analysis results 

Source: PMBOK 5th ed.