QUANTITATIVE RISK ANALYSIS – RISK MANAGEMENT TOOLS
Author: admin // Category: Risk Management
Risk is the probability of occurrence of an event or activity that might have an adverse effect on the project, including on cost, schedule, safety, scope, or quality. It is therefore important to plan for risk management.
Risk management involves identifying risks, analyzing the impact of risks, and subsequently devising a risk response plan. Quantitative risk analysis involves assigning numeric ratings to the identified risks to demarcate high and low value risks.
The basic purpose of performing a quantitative risk analysis includes deriving:
- A prioritized list of quantified risks;
- Quantified cost and time contingency reserves; and
- The probability of meeting cost and schedule requirements for the project.
For quantifying risks, the following details are required:
- The exhaustive list of risks;
- The tolerance limits of the stakeholder;
- The cost estimate for all the resources required to complete the project; and
- The time estimate for completing all the activities of the project.
Once the above listed details are available, Quantitative Risk Analysis can be performed using the following tools and techniques:
Assessing: This is a data gathering phase in which stakeholders and project team members met to discuss information about past project experiences and their relevance to the project risks. The information to be documented will depend on the kind of probability distribution that will subsequently be used for analyzing the results. This information can also be used for verifying the credibility of the analysis.
Valuing: The expected monetary value is calculated by multiplying the probability of occurrence of a risk event with the value of the risk event. If cost is a major governing factor for the project, then the risks with higher expected monetary value need to be addressed as a priority.
Simulation: While performing a simulation, a model of the system or process is used to derive the expected results. The Monte Carlo analysis can be used to quantify risks.
Decision Tree Analysis: The decision tree is a useful tool for choosing an option from various alternatives. It is used to explore different options and the outcome of selecting a specific option.
Sensitivity Analysis: This technique is used to determine the risks which are likely to have the highest impact on the project. In sensitivity analysis, the effect of each risk is examined while keeping all other uncertain elements at baseline values.
It is important to observe the trends which are likely to appear during Quantitative Risk Analysis. Monitoring risks gives the opportunity to perform further analysis of the risks that pose the maximum threat to the project and then devise an appropriate risk response plan and also to determine the effectiveness of risk mitigation strategies.
PM Pathway’s risk management tools are designed to facilitate the determination of project risk consequence levels, record project risks and mitigation strategies and determine residual project risk, all in an easy reporting format.
Watch the video related to risk management
Edge Zarrella is the global head for Information Risk Management at KPMG. He shares with Enterprise Innovation (www.enterpriseinnovation.net) the issues relating to risk management and how it impacts a company’s ability to innovate.
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November 10th, 2009 at 6:36 am
Interesting guy & information – accesible for newbees and some nice comments & viewpoints for professionals as well (professionals…now…who can claim that risk management as a function isn’t an essential part of their job…). The title of the video doesn’t really cover the contents though – his viewpoints are relevant and contemporary for all parts of the world, not just Asia. I look forward to similar posts.
November 10th, 2009 at 6:36 am
Understanding and allocation of risks involved in any investment or work is called risk management. First, you need to do a thorough study of the subject to understand the risks involved. Then for each risk you choose a way to allocate it such as buying insurance or having some contractual obligations for other parties involved in the work or the investment.
November 10th, 2009 at 6:36 am
If some competent engineer/analyst has done a FMECA or FMEA, an FTA, and other safety analyses. AND, these analyses have been peer-reviewed and corrected (if necessary), then I see no need for further modelling.
If the system in question is dynamic (changing part types, changing design, changing configuration), then yes, an ongoing model with a full-time or most-time risk manager may be necessary.
Even if the risk manager is not doing his/her job, a continuing model wouldn't be necessary. A simple peer review of the existing models and analyses would be all that is necessary.
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November 10th, 2009 at 6:36 am
http://www.meridianlink.com/articles/security_risk.pdf
http://www.netaddiction.com/articles/eia_framework.pdf
http://www.thefreelibrary.com/Internet+Risk+Impact+Summary+Report+for+Q3+2003-a0113377379
November 10th, 2009 at 6:36 am
First you need to learn to spell interpretation correctly. Mistakes like that in a resume are really damaging.
You may find a course at a community college. I took one from Dun & Bradstreet by correspondence years and years ago and found it quite helpful.
November 10th, 2009 at 6:36 am
In business, the term operational risk management (ORM) is the oversight of many forms of day-to-day operational risk including the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. Operational risk does not include market risk or credit risk.
November 10th, 2009 at 6:36 am
Good for you. But there is no such thing as MBA in risk management, or MBA in marketing, of MBA in finance. The MBA is a general broad degree covering a wide variety of business issues and training students for careers in managing any area of business up to CEO. MBA students study accounting, finance, marketing, statistics, management, economics, strategy, policy, leadership and similar courses. The MBA was developed because people with technical backgrounds getting promoted into management are not always able to manage, and people in management often don't understand the technical fields they manage. That's why MBA programs prefer students with degrees in other than business and with 2-4 years of work experience. Their graduates learn to manage and can speak the language of the people they manage, whether that is engineering, chemistry, medicine, music, or any other field.
Many MBA programs offer concentrations, but this usually amounts to 2-3 elective courses in a specific field in the second year of the program. So don't worry about a concentration but be careful in choosing the right program. If you find one with Risk Management courses, consider the quality of the school first, and the concentration second.
Before you consider which MBA program is for you, consult the Official MBA Guide, a comprehensive free public service with more than 2,000 MBA programs listed worldwide. It allows you to search for programs by location (US, Europe, Far East, etc.), by concentration (finance, marketing, aviation management, health management, accounting, etc.), by type of program (full-time, distance learning, part-time, etc), and by listing your own criteria and preferences to get a list of universities that satisfy your needs. You can use the Guide to contact schools of your choice, examine their data, visit their web site, and send them pre applications. You can see lists of top 40 schools ranked by starting salaries of graduates, GMAT scores, and other criteria. It's the best service available at http://officialmbaguide.org.
November 10th, 2009 at 6:36 am
November 10th, 2009 at 6:36 am
You'd do a lot better researching the general principles of risk management strategy before asking individual insurers (it's a huge subject)
You can read up on various principles through the IAIS which is pretty much the lead organisation in the world for setting requirements for insurers.
http://www.iaisweb.org/index.cfm?pageID=2
Also ..a personal tip …. although obviously rules are different from jurisdiction to jurisdiction, some of the most comprehensive and yet concise I've seen are the Australian ones (they are very hot on risk management in Aus).
You can read the guidance notes here….
http://www.apra.gov.au/General/General-Insurance-PPGs.cfm
That way you can target your questions and get a much better response
November 10th, 2009 at 6:36 am
What is Quality Assurance?
The answer will be something along the lines of fitness for purpose.
Also, perhaps you could do a bit of research on the Prince2 project methodology…….it covers all of the areas you are interested in.