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What are the differences between qualitative and quantitative risk analysis? Explain.
Qualitative risk analysis "is a simple and cost-effective way to manage project risks" which "uses a relative or descriptive scale to measure the probability of occurrence" (Qualitative Risk Analysis and Assessment, n.d.).
Quantitative risk analysis "is the process of providing numerical estimates of the overall effect of risks on the project objectives when all risks are considered simultaneously" (Dash, 2015). Qualitative risk analysis, generally, takes place before quantitative risk analysis and the latter is typically an optional step. Qualitative risk analysis is a quick and comparatively inexpensive effort aimed at creating baseline priorities for following risk analysis steps.
Quantitative risk analysis uses the qualitative risk analysis output as an input and can be difficult to accomplish if adequate data is not present. Quantitative risk analysis can be a lengthy process as data is collected and each individual risk is evaluated. An example could be that through the process of qualitative risk analysis it is identified that the weather is a level 1 risk on a scale of 1 to 3 with 1 being low. Team member availability may be assessed as a level 3 risk on the other hand.
Quantitative risk analysis could be used against the same risks and produce a financial value associated with each risk that might more closely align the two risks through expected monetary value analysis. Additionally, quantitative risk analysis will look at the overall monetary impact of the risks input into the analysis.
When is each type of analysis appropriate? Explain.
It appears that qualitative risk analysis is always appropriate as it serves as a general overview of risk for the project and it will also serve as the input to quantitative risk analysis.
By performing qualitative risk analysis, you are able to identify the highest impact risks. Since quantitative risk analysis is typically lengthy and therefor costly, qualitative risk analysis is important to determine which risks to focus on. One of the main advantages of using the quantitative risk analysis approach is that you can "quantify the risk exposure for the project, and determine the size of cost and schedule contingency that may be needed" (Rossi, 2007).
While not a definitive explanation, I would say that quantitative risk analysis is appropriate whenever the client, sponsor, or project manager think that it is appropriate. There is a tradeoff that must be made in cost versus information with this analysis approach that may negate the value. I can definitely see the value in using quantitative risk analysis when the project budge is in the millions of dollars.
Also, if the project in question is something that the team has completed many times prior then a quantitative risk analysis will have less value then if it is the first time approaching the project. The determination of when to use the quantitative risk analysis approach is definitely going to vary from project to project and from stakeholders to stakeholders.
What type of analysis will you use for the IRTC customer service system project? Why?
The three factors that I looked at to determine which type of risk analysis to use for the IRTC customer service system project were cost, duration, and problem familiarity. My general estimates so far put the overall project cost at around $100,000. I am assuming that this cost falls in line with previous upgrades but is a higher cost due to increased complexity and project duration.
The past projects took 9-12 weeks and this one is estimated to take around 16-20 weeks so it is roughly double the timeframe of the previous projects. There is added complexity with this system upgrade but the project team does have a considerable amount of experience with this type of effort. Another couple of secondary factors are our level of in-house expertise with quantitative risk analysis and what the expected cost would be to bring in an outside analyst.
If it was possible to perform the analysis in-house within a week at a low cost (maybe under $5000) then it might be worth it. If the CEO or COO demand that it be done or if it is a regulatory requirement then it would be done. Outside of those factors, I would think that our past experiences would allow us to accurately assess risks and plan for contingencies without completing a quantitative risk analysis.