So maybe you’re not quite a genius with math. You’re more comfortable using a qualitative style of analysis to quickly and easily assess the highest level risks. Yet oftentimes, to get at the underlying risks that complex projects demand, the PM needs more facts – that’s where quantitative risk analysis (QRA) comes to bear. Harry Hall, in his blog for PM South, has the answers.
Hard Analysis is Easy
QRA is a hard science way of predicting the viability of cost and schedule objectives. Specifically, it is for critical decisions that require a high degree of objectivity that cannot be glossed from speedy assessments and surface interpretations. Many risks involve numbers – especially when those numbers follow a dollar sign.
The best time to use QRA is during a project that requires a Contingency Reserve (those assets that are waiting in the wings to cover a huge underwriting loss), for projects that are large, complex, and require Yes/No decision making, or for a management team that wants lots of hard facts, and wants them often.
Beneficial approaches to QRA include Three Point Measure and Monte Carlo Analysis. The Expected Monetary Value (EMV) method is excellent for finding predictable outcomes for serious decisions. As an example, EMV involves threats and opportunities. In its simplest form, the EMV is equal to all threats as a percentage minus the monetized percentage of all opportunities. The figure resulting from an EMV analysis represents the needed Contingency Reserve.
Seems fairly straightforward, doesn’t it? After all, who says hard analysis has to be hard?
Read the full blog post at: http://www.pmsouth.com/2014/08/03/evaluating-risks-using-quantitative-risk-analysis/