Perform Quantitative Risk Analysis

Perform quantitative risk analysis is “the process of numerically analyzing the effect of
identified risks on overall project objectives.”14 While all projects use qualitative risk
analysis, quantitative risk analysis is only used when necessary. Bigger, more complex,
riskier, and more expensive projects often can benefit from the additional rigor of these
more structured techniques. Quantitative risk analysis is often used when being able to
predict with confidence what the probability is of completing a project on time, on budget,
and with the agreed upon scope and/or the agreed upon quality is critical. Some of
the more frequently used quantitative techniques are:
• Decision tree analysis: “a diagramming and calculation technique for evaluating the
implications of a chain of multiple options in the presence of uncertainty.”15
• Expected monetary value (EVA) analysis: “a statistical technique that calculates the
average outcome when the future includes scenarios that may or may not happen.
A common use of this technique is within decision tree analysis.”16
• Failure mode and effect analysis (FMEA): “an analytical procedure in which each
potential failure mode in every component is analyzed to determine its effect on
reliability…and for all ways a failure may occur. For each potential failure, an
estimate is made on its effect on the total system.”17
• Sensitivity analysis: “a quantitative risk analysis and modeling technique used to
help determine which risks have the most powerful impact on the project. It examines
the extent to which the uncertainty in each project element affects the
objective.…The typical display is in the form of a tornado diagram.”18
• Simulation: a technique that “uses a project model that translates the uncertainties specified
as a detailed level into their potential impact on objectives.…Usually uses probability
distributions of possible costs or durations…and typically use Monte Carlo analysis.”19
Criteria to help select a suitable quantitative risk technique include the following:
• The methodology should utilize the explicit knowledge of the project team
members.
• The methodology should allow quick response.
• The methodology should help determine project cost and schedule contingency.
• The methodology should help foster clear communication.
• The methodology should be easy to use and understand.20