Risk assessment is an essential step of project planning. A detailed risk analysis activity will help a project manager to better understand the threats related to a project. The activity will help in assessing different types of dangers, and the extent to which they can affect the project deliverables.
A good risk analysis assists in getting insights into the factors that can negatively impact the project. It can help in taking proactive steps for overcoming the obstacles and ensuring successful project completion.
In this article, we will first explain the two types of project risk analysis techniques, and then identify the differences between the two methods.
Qualitative Risk Assessment
Qualitative risk assessment is defined in the fifth edition of the PMBOK Guide as the process of identifying and prioritizing risks for further assessment. Different types of qualitative risk assessment techniques are used. Common qualitative risk assessment methods include the following.
- Delphi technique
- SWOT analysis
- Root Cause analysis
- Assumption analysis
- Probability and impact matrix
- Expert judgment
- Schedule risk analysis
Quantitative Risk Assessment
Quantitative Risk Analysis is defined in the fifth edition of the PMBOK Guide as the process of analyzing the risks numerically with the goal of identifying their effects on the project outcome. It involves assigning a quantitative or numerical rating to the risks that reflect the probability of its occurrence.
Some of the common quantitative risk assessment techniques include the following.
- Sensitivity analysis
- Expected Monetary Value (EMV)analysis
- Modeling &Simulation
- Cost risk analysis
- Breakeven analysis
What’ the Differences Between the Two?
The objective of both the qualitative and quantitative risk analysis is to identify risks. However, qualitative risk analysis is more subjective while quantitative risk assessment is more objective. There can be a subjective bias in case of qualitative analysis. This is not the case with quantitative analysis.
Another fundamental difference between quantitative and qualitative risk analysis is that the former considers the overall project risks while the latter assesses the specific risks to the project. The overall project risks are due to the correlations and interdependencies of different risks. It applies to the overall project instead of individual activities.
Every project manager, as well as business owner, should know how to use qualitative and quantitative risk assessment tools to find out the risks related to a project. You need to understand how the two methods of identifying risks differ and what biases can occur when calculating the risks. This is not just something optional, but should be an essential part of project management.
In this respect, an online work management software can be of great help. The software can help in identifying potential areas of risk and allow proactive steps to be taken to minimize the impact of the risks.