A Quantitative Risk Assessment (QRA) in project management is the process of expressing the impact of risk on a project in numerical terms. It is used to estimate a numerical value (usually probabilistic) on risk outcomes wherein risk probabilities of occurrence and impact values are used directly rather than expressing severity narratively or through ranking, as in qualitative methods.
The main aim of this assessment is to determine time and cost values that represent risk, these values are often referred to as contingencies and provide more accurate information for project risk management and planning purposes.
- Level of Project Definition
Cost Estimate Accuracy: Method of measurement and of pricing
- Project-Specific Risks: Project specific risks related to the intrinsic characteristics of the project. This is captured in the risk register.
Economic Risks (escalation and exchange rates)
- Systemic Risks: Risk associated with system/process/organisation, e.g. EPCM experience, stakeholder alignment, management, decision-making policies, project complexity, labour intensity, project location etc.
The Quantitative Risk Assessment results are presented in a logical and precise manner and give decision makers a clear picture of the impact uncertainties may have on the project. The number of scenarios examined with a QRA is nearly infinite compared to the limited scenarios which can be expressed with traditional qualitative risk management methods. A Quantitative Risk Assessment enables decision makers to make better-informed decisions by providing the following information:
- The probability of achieving cost and time objectives in proportion to risk appetite;
- A project’s risk profile compared to other projects;
- Estimated contingency and management reserve allocations; and
- Areas of risk that should be managed closely.
ProjectLink caters for three types of Quantitative Risk Assessments: