Adopting the Quadratic Mean Process to Quantify the Qualitative Risk Analysis

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This presentation summarizes the white paper which purpose is to propose a mathematical process to turn the results of a qualitative risk analysis into numeric indicators to support better decisions regarding risk response strategies.

Get the white paper at http://rvarg.as/quad

Published in: Business, Technology

Adopting the Quadratic Mean Process to Quantify the Qualitative Risk Analysis

  1. 1. Adopting the Quadratic Mean Process to Quantify the Qualitative Risk Analysis Ricardo Viana Vargas United Nations Office for Project Services (UNOPS) “PMI” is a registered trade and service mark of the Project Management Institute, Inc. ©2013 Permission is granted to PMI for PMI® Marketplace use only.
  2. 2. Qualitative and Quantitative Methods Get the white paper at http://rvarg.as/quad 2
  3. 3. Qualitative and Quantitative Methods ! Advantages! Quantitative!Methods! • Facilitates)the)cost)benefit) analysis) • Gives)a)more)accurate)value) of)the)risk) • More)valuable) ) Disadvantages! • Results)of)the)method)may) not)be)precise) • Numbers)can)give)a)false) perception)of)precision) • More)expensive)and)time) consuming) • • • • • • Qualitative!methods! Relatively)simple)to)be) implemented) Easily)determine)risk) categories)with)greater)impact) in)the)project) Visually)impactful) A)lack)of)understanding)of)the) parameters)used)in)the)scale) can)lead)to)different) interpretations) Results)can)be)biased)) Less)valuable) Get the white paper at http://rvarg.as/quad 3
  4. 4. The Essence of the Qualitative Analysis Probability and Impact Get the white paper at http://rvarg.as/quad 4
  5. 5. Probability Scale  Level! Very! High! High! Medium! Low! Very! Low! Score! Description! 5! It!is!expected!that!the!event!will! occur.!If!it!does!not!occurs!it!will!be! a!surprise.! 4! The!event!has!a!great!chance!of! occurring.! 3! The!event!can!occur.! 2! It!will!be!a!surprise!if!the!event! occurs.! 1! Very!remote!chance!of!the!event!to! happen.!Practically!impossible.! Get the white paper at http://rvarg.as/quad 5
  6. 6. 5 Dimensions of Impact Get the white paper at http://rvarg.as/quad 6
  7. 7. Impact on Time and Deadlines •  Assessment of the level of impact on the conclusion of the project Example Get the white paper at http://rvarg.as/quad 7
  8. 8. Impact on Costs •  Assessment of the level of impact on the final cost of the project Example Get the white paper at http://rvarg.as/quad 8
  9. 9. Impact on Quality •  Assessment of the level of impact on the quality required for the project Example Get the white paper at http://rvarg.as/quad 9
  10. 10. Impact on Safety and Security •  This impact group could include or not aspects related to environment, physical security of the work in the project, data security (IT), and reputation, among others Example Get the white paper at http://rvarg.as/quad 10
  11. 11. Other Impacts •  Optional group that aims to include any other specific impact of a risk that was not covered in the previous groups Get the white paper at http://rvarg.as/quad 11
  12. 12. Proximity: The 6th Impact Dimension Example Get the white paper at http://rvarg.as/quad 12
  13. 13. Calculating the Expected Value •  Risk measurement used to assess and prioritize risk events •  Probability: 1 to 5 •  Impact: 1 to 5 based on the formula Get the white paper at http://rvarg.as/quad 13
  14. 14. Why Quadratic Mean (Root Mean Square) and not Arithmetic Mean •  Based on the assumption that different levels of impact add additional exposure to the project and this variance should be considered as a risk factor to the project. –  where the variance is a measure of how far a set of numbers is spread out Get the white paper at http://rvarg.as/quad 14
  15. 15. Example of Impact Calculation Get the white paper at http://rvarg.as/quad 15
  16. 16. Example of Project Expected Value Calculation Get the white paper at http://rvarg.as/quad 16
  17. 17. Conclusions •  The qualitative risk method is always a simplified model if compared with the quantitative methods. •  The process should be tailored to include different kinds of impacts and scales in order to produce a reliable quantitative result. •  This result allows opportunities and threats to be compared in order to determine the total risk exposure. –  The concept that an opportunity can cancel a threat of the same level is not possible with the traditional qualitative risk management approach. Get the white paper at http://rvarg.as/quad 17
  18. 18. Contact Information Ricardo Viana Vargas ricardov@unops.org / ricardo@ricardo-vargas.com www.unops.org Twitter: @rvvargas Get the white paper at http://rvarg.as/quad Get the white paper at http://rvarg.as/quad 18

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