Qualitative Risk Analysis vs. Quantitative Risk Analysis

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  • 0:04 Qualitative Risk Analysis
  • 1:28 Quantitative Risk Analysis
  • 2:15 Qualitative vs. Quantitative
  • 3:35 Lesson Summary
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Lesson Transcript
Instructor: Olga Bugajenko

Olga is a registered PRINCE2 Practitioner and has a master's degree in project management.

Depending on the characteristics of your project, one of two risk analysis approaches may be more suitable than the other. In this lesson, we'll compare and contrast qualitative and quantitative risk analyses.

Qualitative Risk Analysis

Before diving into a new endeavor, such as buying a new house or launching a new business, we usually spend some time analyzing the pros and cons of an idea, as well as things that could go wrong. Risk analysis is one of the risk management steps, and it's integral for project success. However, there's no single right way of conducting risk analysis. Two main approaches to risk analysis are qualitative and quantitative.

Qualitative risk analysis evaluates and documents the probability and the impact of potential project risks against a pre-defined scale. The scale can be defined from low to high, from 1 to 5, or from 0% to 100% (or 0 to 1) for probability. For example, a risk of failing to obtain a roadwork permit before the start of the project with quite high impact will be ranked 4 on a 1 to 5 scale, while the probability of the same risk will be estimated as 30%, or 0.3. Risks can be additionally categorized according to their source or effect, such as regulatory risks or risks leading to delays.

Qualitative risk analysis is subjective, as it's carried out by individuals participating in a project based on their personal perceptions of the risk likelihood and consequences. The purpose of such analysis is to increase the awareness of the most likely and severe risks, identify weak spots of a project, and create risk responses to reduce the effect that these risks will have on a project.

Quantitative Risk Analysis

Quantitative risk analysis numerically evaluates the effect of potential project risks on project targets. It's focused on creating realistic time and cost targets and calculating the probability of achieving project objectives. For example, it will quantify the impact of failing to obtain a roadwork permit before the start of the project as causing a week delay and costing $50,000.

Quantitative risk analysis is objective and requires a list of prioritized potential project risks, usually created during the qualitative risk analysis. To save time, quantitative risk analysis is usually carried out only for the highest probability and impact risks. The main purpose of this analysis is to analytically identify the most effective risk response strategies that will minimize the risk influence on project objectives.

Qualitative vs. Quantitative

There are several significant differences between qualitative and quantitative risk analyses:

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