Qualitative and Quantitative Risk Analysis
Quantitative risk analysis will help the manager to determine a chance, that project will be completed on time and within a budget, identify critical project parameters, which affect project schedule at most, determine project success rate, make a decision about viable project alternative, etc. All these wonderful things can be meaningless, if they are not based on reliable set of historical data about risks and uncertainties. Moreover such data must be updated during the course of project based on actual inputs. This principle of decision and risk analysis sometimes calls “Garbage In – Garbage Out”. Quantitative risk analysis will be subject of the same heuristics and biases: availability, anchoring, etc. The most straightforward solution will be to import data for quantitative analysis from qualitative project risk management software. Such integration has been already implemented between some qualitative and quantitative risk management software tools.
Quantitative risk analysis software can statistically process data from qualitative tools. Most quantitative risk analysis tools perform Monte Carlo simulation to determine how risks will affect project schedule. One of the methods of modeling risks and uncertainties calls Event Chain Methodology. According to this methodology, an activity in most real projects is not a continuous uniform process. It is affected by the external events, which transform task from one state to another. These events should be properly captured in qualitative risk management software. The events can cause other events, which will create the event chains. These event chains will significantly affect the course of the project. The identification of the critical chain of events makes it possible to mitigate their negative affects.
Now we can come back to our original drilling example. If oil company had qualitative risk analysis software, they would have comprehensive historical data about events, which could happen during drilling, not just duration or cost of similar wells. It will help them to make an informed decision. In decision still has been made to perform drilling and mud disappearing has occurred, both qualitative and quantitative risk management software working together will help the engineers decide about further course of actions. Establishing proper project risk management process will help oil company to save million of dollars.