Tuesday 1 October 2019

Quantitative Risk Analysis

Once our risks are identified and prioritized, we develop risk response plans; these pans need to have contingency funds within the project budget. To determine this contingency budget we leverage an approach called "Expected Monetary Value" EMV.

to find our EMV we use our previously established probability and convert it to a percentage

  1. Won't happen
  2. Not likely to happen
  3. May or may not happen
  4. Likely to happen
  5. Definitely will happen
  • 0%
  • 25%
  • 50%
  • 75%
  • 100%
Once we correlate our probability values with percentages we can leverage our risk prioritization to figure out

RiskProbabilityEstimated CostEMV
Risk # 4
4 = 75%
Risk # 2
4 = 75%
Risk # 1
4 = 75%
Risk # 3
2= 25%
Total -$7200

as always our estimated cost is just an estimate and is only as valuable as its accuracy, once all the Estimated monetary values for each risk that you're going to cover are calculated their total is contingency budget, the amount of money you need set aside should the worst occur.

during the project when a risk is closed the funds for that risk can be released from the contingency fund.

Risk Monitoring and Control
As a project progress the probability of risks decreases however the impact increases. as the project progress and risks are closed that is there is no possibility of the risk occurring, while this happens new risks can be identified and those risks have to be logged in the "risk register". The "Risk Register" should be reviewed on a regular basis to ensure that risk status is tracked irrelevant risks are closed and new risks are identified an captured.