11.4 Perform Quantitative Risk Analysis

"The process of numerically analysing the effect of identified risks on overall project objectives."

The definition shown above in italics is taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Fifth Edition, Project Management Institute Inc., 2013

Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Fifth Edition, Project Management Institute Inc., 2013 Figure 11-11 Page 334

Perform Quantitative Risk Analysis

Numerically analyzing the effect of risks on project objectives:

Perform quantitative analysis normally follows perform qualitative analysis
When the risks are ranked high enough to make this worthwhile

Sensitivity Analysis

Identifying those risks that the project objectives could be most impacted by
Results presented as a Tornado diagram
One diagram per objective
Worst case to best case

Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Fifth Edition, Project Management Institute Inc., 2013 Figure 11-15 Page 338

Data Gathering & Presentation

Interviewing

Team members and risk experts
To quantify the P and I of the highest ranked risks
Collecting values for 3 point estimating

Probability Distributions

Provides a means of representing risk data and modelling a range of potential outcomes

Expert Judgement

Decision Tree Analysis

Build own Centre has an Expected Monetary Value of $362,500 (= $385,000 – $22,500)
Partnering Option has an E.M.V. of $2,000 (= – $48,000 + $50,000)
Based on this, the Build Own Centre option is selected over the other as it has a larger E.M.V.

Exercise

You are planning modifications to a car assembly line. We have identified particular project risks and assessed them as shown below. There is a:

30% probability that parts will be delayed, costing $90,000
60% chance that parts could be produced more efficiently saving us $60,000
45% chance that parts will not be able to be integrated, requiring rework costing $43,500
30% chance that workflow processes will be more streamlined, saving $92,500
20% probability that system and design faults will cause rework costing $25,000 in corrections

What is the EMV?

The Monte Carlo Technique

Uses

Will select input values – pessimistic to most likely to optimistic and all numbers in between
A probability distribution is calculated from the iterations i.e. total cost or completion date based on what was input – cost estimates or schedule network diagram and duration estimates

Calculates

Number of times each activity is on the critical path
How sensitive the output is to a change in the activity and its duration

Helps to assess and decide

On the priority of dealing with the risks depending on the impact on the project

Source http://www.mathworks.co.uk/company/newsletters/articles/improving -an-engine-cooling-fan-using-design-for-six-sigma-techniques.html

Journey Times example

Your Project requires a journey from A to B which has

12 traffic junctions in between, with an average time between junctions of 10 minutes
And a wait time of 3 minutes at each junction when it is on red

Worst case is when all the lights are on red

= (12 x 3) + (12 x 10) = 156 minutes

Best case is when all the lights are on green

= 12 x 10 only = 120 minutes

Most probable is when half are on red and half on green

= (12 x 10) + (6 x 3) = 138 minutes

Need to take other possible combinations into account. This is what Monte Carlo does via software, you will not have to do this technique for the exam, but do need to understand it.

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