Risk Management: Qualitative and quantitative analysis

I'm trying to implement some guidelines on risk management based on PMI standard and i just want to confirm my impressions about qualitative and quantitative risk analysis since i was attending some very interesting webinars provided by pmi's communities of practice: 1. How does qualitative analysis affects the cost and time baselines ? I mean, if you have a probability and an impact how do you translate it to dollars and time without performing quantitative analysis. Just using an expected monetary value ? 2. If you calculate the contingency reserve based on your qualitative analysis, do you need to make it explicit in your WBS and schedule ? I mean, specifically create activities that show the work that must be done if the risk materialize. 3. Anyone had the necessity to implement quantitative risk analysis, for example, Schedule Risk Analysis with Monte Carlo Simulations or any other technique for Information Technology Projects ? If that's the case, it was worth the effort ? why ? 4. Can anyone recommend a good book, with solid examples regarding this topics?
16 days ago

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Follow Bill

Bill Duncan Cesar -- the Project Risk Management chapter in the current PMBoK Guide is heavily colored by the practices of full-time, risk management specialists who deal mainly with large construction projects.
Since you're in IT, I would recommend looking at what SEI has to offer, although again, SEI has a bias toward commercial software development. I also doubt that you have the necessary historical information available to "calculate" a contingency reserve. I would suggest that you estimate one based on past experience. Identifying specific activities to do if the risk materializes is contingency planning. Don't put them in your WBS until the risk materializes. Whether or not you include your cost and schedule contingencies in your WBS is usually a matter or personal or corporate preference. But they should be in your budget and schedule even if they aren't in the WBS. I've had IT clients who did Monte Carlo analysis for major projects. For smaller projects, a schedule contingency, a resource-driven critical path, and proper float management will probably suffice.
15 days ago Like

Follow Jim

Jim Ward For most projects, certainly for projects such as software development which rely almost totally on knowledge worker input, quantitative risk analysis is a waste of time. However, a good qualitative analysis process, which includes a large group of stakeholders participating, is essential.
I agree with everything Bill says. As to contingency reserves, this can be largely a qualitative assessment as well, again, as Bill says, based on your past experience. If you have to develop contingency plans, such as a Continuity of Operations plan, this time and effort involved should show up on your WBS and project schedule. If a risk event were to occur, you should know in advance pretty much how to modify your project schedule to accommodate that event. I would recommend making a contingency reserve explicit in the budget and adjusting the schedule as needed should risk events occur. I think this approach is consistent with the PMBOK Guide. I have found Carl Pritchard's book on project risk management to be the most complete discussion of this topic. Another good source is the risk management discussion in Steve McConnell's "Software Project Survival Guide."
15 days ago Like

Follow Kiron

Kiron Bondale, PMP, PMI-RMP Csar To add to Bill & Jim's comments, although you might have taken a qualitative analysis approach with identified risks, when defining appropriate contingency values for cost & schedule, always refer back to those identified risks. This will help provide you with some supporting justification when negotiating for approval on those contingencies. In the past, I've even used some rules of thumb and EMV as you've suggested - a moderate probability is 50% and if the average schedule impact of a realized risk was two weeks, I'd consider it had an expected schedule impact of one week. Of course, you don't add up all those EMVs and ask for the sum total, but it provides you with a good basis for discussion! Although occasionally theoretical, I have found Dr. Hillson's ( http://www.risk-doctor.com/ ) work on the topic to be informative and engaging. Ciao! Kiron
15 days ago Like

Follow Csar Mauricio

Csar Mauricio Lpez Bill, thanks for your comments. I found something in the PMI Site, a presentation made by Gregg Hughes, with this possible methodology:
1. Include the Risk work package in the PMB (linked to an event) 2. Include the schedule duration impacts as float (+/-) 3. Include the contingency budget with the work package 4. Track and report the risk work package like any other work package It sounds like a good approach, because a can talk to my client in order to tell him that we can have several dates to finish the project, it all depends on risk materialization and if some risks occur then we should start specific actions that will cost some money. Jim and Kiron, thanks for the information. I definitively will take a look at the book and web site. Jim and Kiron, thanks fot the information. I definetively will take a look at the book and web site.