Project Risk Management: Qualitative vs Quantitative Analysis for PMP Exam

In Project Risk Management, the Project Manager is required to carry out both Qualitative Risk Analysis and Quantitative Risk Analysis. While these two analysis processes are used in risk rating of all identified and significant risks, the PMBOK® Guide has listed Perform Qualitative Risk Analysis and Perform Quantitative Risk Analysis as two independent processes for Project Risk Management.

Qualitative Risk Analysis vs Quantitative Risk Analysis

After project risks are identified in the “Identify Risks” process and registered into the Risk Register, these risks must be undergone Qualitative Risk Analysis and Quantitative Risk Analysis in order to assess their implications for risk response planning.

• Qualitative Risk Analysis: Qualitative Risk Analysis aims to assess all identified risks for their probability or likelihood of occurrence and their implications/impact to the project objectives should they materialize.
  • The Risk Score for individual identified risk is calculated by multiplying the probability of occurrence (P) by impact (I):
    i.e. Risk Score = P x I
  • The Risks will usually be assigned an value according to the Impact Scale
    • e.g. an Impact Scale of 1 to 5 with 1 being the lowest impact and 5 begin the highest impact
  • The Risk Score / Impact Scale will facilitate the project manager in prioritizing the risks (i.e. highly risk score risks must be dealt with first as they will have large impact on the project success and they are more likely to occur).
• Quantitative Risk Analysis: Quantitative Risk Analysis aims to estimate the effects of risks on the project objectives in monetary terms/time cost.
  • Quantitative Risk Analysis will usually be performed on the risks with highest priority as they are most important risks to the success or failure of the project.
  • Quantitative Risk Analysis is very time consuming as the impact of the individual risks must be evaluated.

Illustrated Example

Suppose you are the project manager of the “Getting PMP Certified in First Try” project. Below are a number of identified risks:

• Trapped in a car accident and begin late for the exam.
• A sudden work assignment requires you to work OT every day during your exam preparation.
• Your son falls ill during your exam preparation.
• The World War 3 breaks out during your preparation.
• A new version of the exam (e.g. PMBOK® Guide 6th edition) is administrated while you study for the old version.
• ……

In Project Qualitative Risk Analysis, every risks is assigned a Impact Scale value:

• Trapped in a car accident and begin late for the exam. (5)
• A sudden work assignment requires you to work OT every day during your exam preparation. (3)
• Your son falls ill during your exam preparation. (0 – as you don’t have a son)
• The World War 3 breaks out during your preparation. (1)
• A new version of the exam (e.g. PMBOK® Guide 6th edition) is administrated while you study for the old version. (3)

In Project Quantitative Risk Analysis, only high impact risks are assessed:

• Trapped in a car accident and begin late for the exam — costs involved:
  • the exam invigilator will possibly deny entry to the exam and you will need to re-schedule the PMP Exam with a fee (A)
  • an extra day off from work is required for taking the exam (B)
  • the travelling costs to and from the exam centre (C)
  • the risk may cost A + B + C

Mock Exam Question

1. Over a hundred of risks have been identified for a project involving building a car production plant. The project manager, Tom, is now assessing the likelihood of occurrence and their impact according to a scale specified in the Project Risk Management Plan. The project manager is performing:
   1. Project Risk Identification
   2. Qualitative Risk Analysis
   3. Quantitative Risk Analysis
   4. Risk Response Planning
   Solution: B
   “Assessing the likelihood of occurrence and their impact” is the very activity carried out in the “Perform Qualitative Risk Analysis” process. After this, the project manager will then perform Quantitative Risk Analysis to calculate the risks in terms of possible money costs.

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Summary

Assessing project risks involves both Qualitative Risk Analysis and Quantitative Risk Analysis:

• Qualitative Risk Analysis provides a qualitative approach for assessing risks in terms of their relative impact/likelihood.
• Quantitative Risk Analysis provides a quantitative approach for assessing risks in terms of possible money/schedule costs.

Additional FREE PMP resources: 47+ Commonly Confused Term Pairs with detailed explanations. If you found this article useful, you may wish to reference other Commonly Confused Term articles.