Quantifying Risk

The Perform Quantitative Risk Analysis process evaluates the impacts of risk prioritized during the Perform Qualitative Risk Analysis process and quantifies risk exposure for the project by assigning numeric probabilities to each risk and their impacts on project objectives. This quantitative approach is accomplished using techniques such as Monte Carlo simulation and decision tree analysis. To paraphrase the PMBOK® Guide, the purpose of this process is to perform the following:

■ Quantify the project's possible outcomes and probabilities.

■ Determine the probability of achieving the project objectives.

■ Identify risks that need the most attention by quantifying their contribution to overall project risk.

■ Identify realistic and achievable schedule, cost, or scope targets.

■ Determine the best project management decisions possible when outcomes are uncertain.

Perform Quantitative Risk Analysis—like Perform Qualitative Risk Analysis—examines each risk and its potential impact on the project objectives. You might choose to use both of these processes to assess all risks or only one of them, depending on the complexity of the project and the organizational policy regarding risk planning. The Perform Quantitative Risk Analysis process can follow either the Identify Risks process or the Perform Qualitative Risk Analysis process. If you do use this process, be certain to repeat it every time the Plan Risk Responses process is performed and as part of the Monitor and Control Risks process so that you can determine if overall project risk has decreased.

I've already covered many of the inputs to the Perform Quantitative Risk Analysis process in previous sections of this chapter. They are as follows:

■ Risk register

■ Risk management plan

■ Cost management plan

■ Schedule management plan

■ Organizational process assets

The elements of the organizational process assets you'll want to pay close attention to as an input to this process are the historical information from previous projects, risk databases, and risk specialists studies performed on similar projects.

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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