From the course: Strategic Project Risk Management
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Quantitative analysis
From the course: Strategic Project Risk Management
Quantitative analysis
- Quantitative risk analysis turns the shadows of risk into a chartered landscape. It turns rough guesses into hard numbers. For each risk we have identified by giving a number for its chance to occur, and its potential damage, we can see which risks are pebbles and which are boulders. For the big league projects, mm, think oil rigs and skyscrapers, this precision isn't just a helpful, it is critical. We rely on tools like expected value analysis, decision trees, and the Monte Carlo simulation to guide us. Starting with expected value analysis. On a software project, say you identified a threat involving a bug. You estimated that there is a 40% chance it could happen with a likely cost of $10,000. Multiply 40% by $10,000, and you get an expected value of $4,000. This number helps us grasp how heavy a risk weighs on our budget. Similarly, you can calculate the expected values of every one of the threats that you identified. As some of these values represents the cost of the risks…
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