Introduction to Quantitative Risk Analysis for the PMP Exam

 

Knowing how to gather, analyze, and take action on risk-related information is vital for every project manager. This is why it’s essential to master the art of quantitative risk analysis prior to going through your PMP Exam. This Project Management Academy resource will go over the basics of it, the reasons why it’s important, and the best way to conduct qualitative risk analyses.

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Get ready for the PMP test and discover how to become a more efficient project manager with the Project Management Academy introduction to quantitative risk analysis.

What is Quantitative Risk Analysis?

Quantitative risk analysis is a process within the Risk Management Knowledge Area. This process is called, fittingly, “Perform Quantitative Risk Analysis.” Quantitative risk analysis is a Risk Management process that helps managers numerically analyze how identified risks may affect a project’s objectives and what contingency reserves may be required to account for those risks.

How is quantitative risk analysis used in projects?

Project managers can perform a quantitative risk analysis to inform sound project decisions supported by numerical data, like the schedule or financial cost associated with the risk. Assessing project risks through quantitative risk analysis is also helpful for estimating or simulating risk-related information as well.

Knowing more about the risks associated with your project can help you to better plan for their risks. You can also use quantitative risk analysis to better monitor and control some of the variables that are related.

When and how often is quantitative risk analysis used?

Quantitative risk analysis is typically done in tandem with qualitative risk analysis, after risks are identified. Qualitative risk analysis helps you prioritize project risks while quantitative risk analysis allows you to see the probability of a project’s success given the current risk information.

Risk identification and analysis should occur as early in your project as possible but risk management is an ongoing process throughout the entire project. You can review risks while they are new or update your risk register to stay current.

Pros and cons of quantitative risk analysis

Quantitative risk analysis can be an important tool, but with this comes its own set of pros and cons. Make sure you consider carefully if these pros are worth investing your time into quantitative risk analysis.

Our project management software is software that helps guide your decisions with objective data, providing a way to manage discussions and organize risk-related information for large, complex projects.

Despite these benefits of performing quantitative risk analysis, it may not be a worthwhile process if your project is small or relatively straightforward.

Studying for the PMP Exam?

Inputs Required to Perform Quantitative Risk Analysis PMP

To perform a quantitative risk analysis, you will need various data inputs to help you calculate and analyze risk-related information.

  • Risk Register: an organized list of all the risks you and your project team have identified and other helpful information such as type, probability, and response plan.
  • We put in place a risk management plan to define the tolerable level of risk, steps for managing risks before or after they occur, and what more needs to be done.
  • Schedule baseline: a document establishing a baseline for the work to be accomplished, detailing how project risks may affect the project’s timing, and describing any actionable steps related to this information.
  • Project documents. We scan any forms and files that are needed for your project to help plan a successful and profitable outcome.
  • Cost baseline: based on the schedule baseline, but including financial costs related to your project and potential risks.
  • Good organizational process assets: any resources you can use to help you manage your project. These can include enterprise environmental factors, risk templates, information from past projects, or established policies, procedures, and guidelines.

We provide companies with information that helps them make sound decisions about risk.

Outputs After You Perform Quantitative Risk Analysis PMP

What does quantitative risk analysis drive in the Project Risk Management process? The potential output of performing quantitative risk analysis is project document updates, such as updating the risk report. The risk report can provide a list of suggested risk responses based on the level of overall project risk exposure or explore critical individual project risks.

Remember, project risks are not always negative. Sometimes a risk will have a positive impact on your company and other times it will have negative consequences for the company. Therefore, you should consider creating a risk report to include both types of risks in order to make informed decisions about how to respond. The risk report and the recommendations made in it will become inputs to the Plan Risk Responses process.

Tools and Techniques to Help you Perform Quantitative Risk Analysis

There are many useful tools and techniques that can help you perform quantitative risk analysis as a project manager. These can include:

  • Data gathering: structured interviews with subject matter experts, project team members, or stakeholders to understand the optimistic, pessimistic, and realistic probability and impact of each risk.
  • Experts provide insight about your risk data, new methods for gathering information such as surveys, and an overview of your risk register.
  • Representations of uncertainty
  • Monte Carlo analysis: a simulation technique used to analyze the impact of risk events that typically uses a computer to calculate the possible impact.
  • Sensitivity analysis: examining your project to find what risks you might be at risk of and how you may act with those risks.
  • The decision tree analysis is a method by which to calculate expected monetary value. It is done by plotting project decisions in a flow diagram.
  • Influence diagrams help decision-makers make decisions in uncertain situations by providing a way to depict the variables, outcomes, and relationships among them.

Interpersonal and team skills: your ability to facilitate and perform the tools and techniques listed above is, in itself, a crucial tool at your disposal.

Summary

Preparing for the PMP exam can be achieved through education, certification, and risk analysis. Here’s a quick review of what you should know about performing qualitative and quantitative risk analysis, which will help prepare you for the PMP exam.

  • What inputs do you need to perform a quantitative risk analysis
  • What information or outputs do you obtain when performing quantitative risk analysis
  • The different tools and techniques associated with quantitative risk analysis
  • How to interpret information related to quantitative risk analysis and the overall health of your project
  • How quantitative risk analysis fits into the overall risk management process

You don’t have to calculate any information related to performing quantitative risk analysis. Instead, try to prepare for and answer situational questions. For example, if you are given information related to quantitative risk analysis, you should be able to interpret how this information could impact your project.


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