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Qualitative Risk Analysis versus Quantitative Risk Analysis
The reason we’re looking at this is that Qualitative risk analysis and Quantitative risk analysis can be confused during your PMP exam or CAPM exam, so it’s best to ensure that you know the difference before going in to take the test, and that will help you during a few of the questions there and help you get a higher mark.
Let’s take a look at them. We’ve got Qualitative risk analysis which is the act of brainstorming risks, often based on existing risk categories which might be part of your Organizational Process Assets. You might have an existing list of categories that you can choose from or delve deeper into, and you’re subjectively assigning a probability and impact rating to them.
Using Ratings with Qualitative Risk Analysis
For example, is it a high? Or maybe a five out of five probability, and then a five impact. Then we’re multiplying those together which gives us a final score so those risks can be prioritized. In this case for example that 25 might be the highest. You could have any rating there, or any number assigned to those depending on the organization that you’re working in, which again might have existing ways of working, but under this circumstance that might be a high probability and impact and that would be prioritized quite highly as a result.
All project risks go through this process, through the process of Qualitative risk analysis, however all project risks do not go through Quantitative risk analysis. So only a few, as determined, or only if needed. This is the act of collating purely numerical data, often dollars or cost for the risks, first by risk and then combined as a whole.
Quantitative Risk Analysis
With our Quantitative risk analysis example we have a few risks here, you’ve got the dollars assigned to them and they can be collated up to a total project risk cost. It’s often used in finance, insurance, forecasting using large risk spreadsheets and Monte Carlo simulations, where you might be testing a thousand different runs of a simulation and then seeing the variations of cost in those different runs for example. It often that involves quite high computing power, and we want to see the range of possible cost impacts and use that to give you an idea of what you might be up against during your project, to basically see that range and maybe it’s a low range, maybe it’s a high range.
Not all risks will go through this process. I only use it as deemed necessary.
To summarize, for qualitative risk analysis we’re using the probability and impact assessment, and it’s used on every risk. We’re subjectively assigning a rating of probability and impact so that we can prioritize those risks. Quantitative risk analysis is most often the dollar impact, and certainly a numerical impact, and it’s not used on every risk.
And that is the difference between Qualitative and Quantitative Risk Analysis in your project.
– David McLachlan