On May 18, 2015

Qualitative versus quantitative risk analysis

qualitative vs quantitative

Many people get confused about qualitative and quantitative risk analysis. What is the difference? Which one is better? Should I do both? This article reflects the differences between qualitative and quantitative risk analysis and gives the advices on the project risk management approach.

Plan in advance

Best practices recommend to start risk management activities with planning the approach. Before thinking about particular risks, you should first decide how you will manage the risk in general. Who will be involved, what activities you will take, how the assessment will be done, etc. You should also decide how the risk analysis will be done. Thinking about all these issues in advance ensures that you have clear guidance on the process, and you won’t get lost while dealing with later risk management processes – risk identification, qualitative and quantitative risk analysis, risk response planning and controlling the risks in the course of the project.

Qualitative risk analysis

Just after the identification of first risks, you already have in mind their potential impact and probability of happening. This information will help you to evaluate whether it is worth to take care of a  risk, or maybe you should put it to a watch list  and only observe from time to time. Of course you cannot rely only on your own assessment, but rather invite to the process subject matter experts and project team members.

 

Qualitative Risk Analysis is the process of prioritizing risks for further analysis or action. The prioritization is done by assessing their probability of occurrence and impact. Sometimes also other factors are taken into account – like for example risk urgency or risk category. The main tool used in this process is the probability and impact matrix, which helps to determine which risks fall into high, moderate or low priority.

Quantitative risk analysis

Quantitative analysis is the process which follows the qualitative analysis. It is done only for these risks, which are high or moderate. The purpose is to do a more objective assessment and evaluate the risks in terms of potential impact on project objectives. For example – if qualitative risk analysis says that the final rating for a risk is 45%, then the quantitative risk analysis complete the information saying that  the risk has $20 000 negative impact on costs.

Quantitative analysis uses more complicated tools based on the probability models like sensitivity analysis, expected monetary value, modelling and simulation. It requires to spend some time and cost on gathering the proper data and doing the calculation. A a result, it gives more credible assessment, which enables to calculate the probabilities to achieve project objectives and determine the required contingency levels.

differences

What’s in common

What is common for two types of the analysis, is the fact that they both should involve the engagement of the subject matter experts and project team members, as the risk assessment should take into account many different viewpoints. Both types of the analysis can be repeated regularly,  because during the course of the project new risks can be identified or the probability or impact levels for a risk can change.

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