Traditionally, most projects have used Qualitative Risk Analysis which focuses on a single “point” estimation of individual projects risks, without considering risks interdependencies and overall risk impact on project objectives. Decisions based only on the qualitative approach alone can be very unprecise and even dangerous to the project.
Quantitative risk analysis focuses on an overall risk impact on project objectives by applying probabilistic analysis with Monte Carlo simulation to the holistic project model. It conducts a thorough analysis of all possible combinations of project risks impacting the project objectives, shows a complete picture of possible outcomes and allows forecasting of overall risk impact with the required level of confidence. This approach helps to identify the project areas where the risks threaten objectives beyond the tolerance of the stakeholders and where mitigations or corrective actions should be taken.
Quantitative Analysis is a powerful methodology which helps project managers make timely decisions throughout project execution and improve project performance.
In this presentation, we will use a real project example to discuss how to apply quantitative risk analysis using a Monte Carlo simulation to the project model. We will estimate the overall risk impact on project objectives and what contingency reserve is needed to address the risks.
We will also assess the confidence factor of delivering the project on time and within the budget, determine which risks should be addressed first, and analyze the effectiveness of the mitigation strategy before implementing it.
This information is critically important, for choosing an effective course of action and keeping the project on track!