Qualitative and quantitative risk analysis are two crucial processes in risk management, itself an indispensable part of project management. This necessitates knowledge into the differences between qualitative and quantitative risk analysis, their applications, and determination of which one is most appropriate for the present IRTC project.
Differences between Qualitative and Quantitative Risk Analysis
In terms of conceptual difference, qualitative risk analysis prioritizes identified risks through assigning the probability or likelihood of taking place, and impact on the project should the risk occur. As a result, the project manager uses a probability and impact matrix (PIM) tool to undertake qualitative risk analysis (PMBOK, 2013). The rating scale that is used during qualitative risk analysis has a range of values that are represented by labels that are non-numerical such as low, medium and high. On the other hand, quantitative risk analysis assigns values to the identified risks, usually in terms of costs and time. This difference means that qualitative risk analysis assigns descriptive words such as rare, unlikely, possible, likely, and certain while quantitative risk analysis assigns each risk a specific fraction between zero and one, which may also be expressed as a percentage (Kendrick, 2009). Qualitative risk analysis usually precedes the quantitative approach when both are undertaken, with the former appearing less complicated than the latter (Loosemore, Raftery, Reilly, & Higgon, 2006). It may not be necessary to have specialized tools in order to conduct a qualitative risk analysis but a quantitative risk analysis may entail the use of specialized software based on the complexity of the numerical operations that will be conducted.
Appropriateness of Each Type of Analysis
It is important to conduct a qualitative risk analysis in order to identify the risks that are associated with a project. There are two categories of risks: source based risks and effect based risks. Conducting a qualitative risk analysis allows for one to come up with measures that are geared towards the elimination and minimization of the potential risks to the project that is being implemented.e risk analysis in order to identify the potential risks that are associated with a given project. According to Loosemore, Raftery, Reilly, and Higgon (2006), quantitative risk analysis should be performed when the qualitative analysis reveals particularly important risks that need more attention. It allows for the creation of attainable and realistic goals and schedules. It provides a quantitative estimate of the possible outcomes of a project in addition to providing an assessment of the objectives of the project. It provides a numerical basis for decision making in the event that there is uncertainty regarding a given decision Further, quantitative risk analysis is only appropriate when the data available can accommodate the assignment of numericals, including aspects such as costs and time. The appropriateness of quantitative risk analysis is also determined by the availability of the necessary expertise to conduct and interpret quantitative processes.
Choice of Risk Analysis for the IRTC Project
A combination of qualitative and quantitative risk analysis approaches will help refine and reinforce the IRTC’s project risk management. The qualitative step will delineate the potential risks and assign them priorities based on probability and impact. This will reveal the risks of highest concern in the project, allowing further analysis based on the quantitative approach. Quantitative risk analysis will then refine the manager’s attention to the most pertinent risks, informing decisions about risk aversion efforts and other forms of contingency planning. A quantitative risk analysis would inform critical decisions such as back up strategies for the system and cost implication vis a vis cost of implementation.
The choice of a combined risk analysis approach is informed by the literature reviewed, which indicates that quantitative analysis is applicable when appropriate data is available (Loosemore, Raftery, Reilly, & Higgon, 2006). In this case, IRTC has extensive data on timelines and costs for various aspects of the project, making quantitative risk analysis relevant. There is extensive data on the time it would take to implement the project and the cost of labour. It is therefore possible to determine the probable estimates based on data on time and cost that has been available. However, the literature also reveals that qualitative analysis usually precedes quantitative methods, necessitating the mixed analysis approach.
Kendrick, T. (2009). Identifying and managing project risk: essential tools for failure-proofing your project. New York, NY: AMACOM.
Loosemore, M., Raftery, J., Reilly, C., & Higgon, D. (2006). Risk management in projects. New York, NY: Taylor & Francis.
PMBOK. (2013). Qualitative and quantitative risk analysis. Retrieved from http://www.pm-primer.com/pmbok-project-management-body-of-knowledge/pmbok-qualitative-and-quantitative-risk-analysis/