Quantitative Risk Analysis

What is Quantitative Risk Analysis?

Quantitative Risk Analysis (QnRA) of a project models project uncertainty and risk events to produce numerical outputs expressing the riskiness of the project overall at differing probability levels. Quantitative risk analysis can reveal more about the potential impact of risks on a project than traditional qualitative risk registers that typically only rank risks via a “heat map”.

One of the most used QnRA techniques is Monte Carlo modelling which can produce rankings of contributors to uncertainty

When to use Quantitative Risk Analysis

Quantitative risk should be used in any situation where a project is to be undertaken that is either too complex to assess by traditional qualitative means, or where the project is of significant importance to the organization undertaking it. QnRA can be used on any project involving quantifiable measures however and often provide a great deal more value to a project through examination and reporting of risk and uncertainty drivers and behaviours.

Benefits and Limitations of Quantitative Risk Analysis

One of the primary distinctions between qualitative and quantitative assessments is that quantitative assessments can allow for evaluation of range uncertainties as well as distinct risk events. This means that a quantitative model can deal with estimating inaccuracies as well as events that may or may not occur. This results in a more comprehensive model of uncertainty on a project.

Unlike qualitative techniques, quantitative analysis also allows you to model the consequence of risks as they apply to a model of a project or scenario. This is important in schedule risk analysis as a schedule risk may have a high impact rating, but it may have no impact on the overall model completion if it applies to an area of the schedule with high float. Similarly, risks in quantitative models can be assessed concurrently. This means that if two risks fire together, it is possible to model that one risk supersedes the other and the impact of the second is nullified.

Quantitative risk assessment is sometimes criticised for its complexity. Quantitative risk assessments can be rendered of little use or worse, downright misleading by being facilitated by persons with little or no experience in performing them. Quantitative risk models are sometimes complex to get right and should be handled by persons who work with them day in and day out, and thus develop the necessary depth of knowledge to produce realistic and reliable results.

Further Information

For specific information relating to a selection of quantitative cost and schedule risk analysis methodologies, please refer to the topics in the links below:

Schedule Risk Analysis

Integrated Cost & Schedule Risk Analysis

Systemic / Parametric Risk Analysis