| Risk is the probability of occurrence of an event or | | | | also be used for verifying the credibility of the |
| activity that might have an adverse effect on the | | | | analysis. |
| project, including on cost, schedule, safety, scope, or | | | | Valuing: The expected monetary value is calculated |
| quality. It is therefore important to plan for risk | | | | by multiplying the probability of occurrence of a risk |
| management. | | | | event with the value of the risk event. If cost is a |
| Risk management involves identifying risks, analyzing | | | | major governing factor for the project, then the |
| the impact of risks, and subsequently devising a risk | | | | risks with higher expected monetary value need to |
| response plan. Quantitative risk analysis involves | | | | be addressed as a priority. |
| assigning numeric ratings to the identified risks to | | | | Simulation: While performing a simulation, a model of |
| demarcate high and low value risks. | | | | the system or process is used to derive the |
| The basic purpose of performing a quantitative risk | | | | expected results. The Monte Carlo analysis can be |
| analysis includes deriving: | | | | used to quantify risks. |
| - A prioritized list of quantified risks; | | | | Decision Tree Analysis: The decision tree is a useful |
| - Quantified cost and time contingency reserves; and | | | | tool for choosing an option from various alternatives. |
| - The probability of meeting cost and schedule | | | | It is used to explore different options and the |
| requirements for the project. | | | | outcome of selecting a specific option. |
| For quantifying risks, the following details are required: | | | | Sensitivity Analysis: This technique is used to |
| - The exhaustive list of risks; | | | | determine the risks which are likely to have the |
| - The tolerance limits of the stakeholder; | | | | highest impact on the project. In sensitivity analysis, |
| - The cost estimate for all the resources required to | | | | the effect of each risk is examined while keeping all |
| complete the project; and | | | | other uncertain elements at baseline values. |
| - The time estimate for completing all the activities | | | | It is important to observe the trends which are likely |
| of the project. | | | | to appear during Quantitative Risk Analysis. Monitoring |
| Once the above listed details are available, | | | | risks gives the opportunity to perform further |
| Quantitative Risk Analysis can be performed using | | | | analysis of the risks that pose the maximum threat |
| the following tools and techniques: | | | | to the project and then devise an appropriate risk |
| Assessing: This is a data gathering phase in which | | | | response plan and also to determine the |
| stakeholders and project team members met to | | | | effectiveness of risk mitigation strategies. |
| discuss information about past project experiences | | | | PM Pathway’s risk management tools are |
| and their relevance to the project risks. The | | | | designed to facilitate the determination of project |
| information to be documented will depend on the | | | | risk consequence levels, record project risks and |
| kind of probability distribution that will subsequently | | | | mitigation strategies and determine residual project |
| be used for analyzing the results. This information can | | | | risk, all in an easy reporting format. |