Quantitative Risk Analysis Tools & Techniques PMP

What's up guys? In this video, we will be covering the quantitative risk analysis, and if you haven't done so already, make sure you hit the subscribe button and the bell notification. Okay, now jumping onto the topic for today, let's talk about quantitative risk analysis. So previously we talked about the qualitative risk analysis. We know that we will run all of the identified risks on our project through the probability and impact matrix in order to determine the risk severity. For those risks that are deemed high severity, we Run them through the quantitative risk analysis. This analysis is objective and it takes longer to do, so that's why we're only doing it on the high priority risk. Now, the objective here is to actually find out what is the actual impact on the cost or schedule if this risk were to actually occur. So it's putting an actual number to it. For example, if this risk were to actually occur, the impact would be we will be $40,000 behind schedule. That's an example. So we're actually putting numeric term behind it. This will allow us to see how much reserve we need in our contingency reserve in order to cover this risk if it were to occur. Remember that a risk is an uncertain event that may or may not happen in the future. If the risk did actually happen, then it becomes an issue. So now let's take a closer look at the quantitative risk analysis. This is more detailed than the qualitative risk analysis. Qualitative risk analysis will just say, you know, there's a high probability of this risk occurring and the high impact that it will have on the project. But here in quantitative risk analysis, we're actually saying there's a 40% chance of this risk occurring and the actual impact will be $20,000, for example. And this analysis helps a project manager figure out how much contingency reserve they need when they're managing this project. It could also influence a go or no-go decision. Sometimes when the risk associated with a project is too high, the team or the sponsor may just choose to not do the project to start with. And you will also include all of the data that you, you have analyzed from the quantitative risk analysis and include this into your risk register. There are a number of tools and techniques that you will use for this process. Let's cover some of them now. The first one is a 3-point estimate. This is a technique that uses optimistic, most likely, and pessimistic values to determine the best estimate. Decision tree analysis— this is a diagram that shows the implications of choosing one alternative over another alternative. EMV stands for expected monetary value. This is a method used to establish the contingency reserve for a budget or schedule. Monte Carlo analysis is a technique that uses optimistic, most likely, and pessimistic estimates to determine the total project cost or completion dates. So for example, we could estimate that the probability of completing a project at a cost of $20 million is about 80%, right? So it tells you how likely you are to achieve the project at a certain cost level. Now the next tool and technique is called sensitivity analysis. This is a technique used to determine which risk will have the greatest impact on your project. One form of sensitivity analysis is called the tornado diagram. And lastly, we have FMEA, or fault tree analysis. This is analysis of a structured diagram which identifies elements that can cause system failure. Now, just to dive a little bit into one of the tools and techniques in more detail and show you how to compute it, let's take a look at an example of EMV. So here we have the 3 risks that occur on our project, A, B, and C. We have the probability and impact as well. In order to calculate the EMV, we just multiply the probability by the impact. So if we take Risk A as an example, we will multiply the probability, 20%, times the 10%, which gives us $2,000. And if we have a positive risk, that would mean that we would have a positive EMV. If we have a negative risk or threat, that means we would have a negative EMV. And in the end, we would sum everything up to know how much we need in our contingency reserve. So just as a quick recap, quantitative risk analysis is going to give you a quantifiable number. So this is a numeric value that you're calculating only on the high priority risk. That is the purpose of this process here. So I hope you enjoyed this tip, and if you want more great for project management just like this, be sure to sign up for our free project management course at www.exampm.com/free, and I will teach you how to get your PMP certification in the next 6 weeks or less there. So I'll see you in the training. Thank you for joining me here today.