General

Quantitative Risk Analysis numerically estimates the probability that a project will meet its cost and time objectives. Quantitative analysis is based on a simultaneous evaluation of the impacts of all identified and quantified risks. (Source: WSDOT Project Management Online Guide.)

The Strategic Analysis and Estimating Office (SAEO) at WSDOT offers several tools for quantitative analysis of risk. These tools are described in Executive Order E 1053 and summarized in Exhibit 4-1.

Quantitative techniques, such as Monte Carlo simulation, can be a powerful tool for analysis of project risk and uncertainty. This technique provides project forecasts with an overall outcome variance for estimated project cost and schedule. Probability theory allows us to look into the future and predict possible outcomes. Note: Use of quantitative analysis, while very powerful, also can be misleading if not used properly. WSDOT provides a comprehensive guide for risk workshops that, if followed, helps ensure a consistent process and safeguards against biased and/or misleading results.

The following caution comes from the paper “Top Down Techniques for Project Risk Management” by Martin Hopkinson, presented at the 2006 PMI Conference in Madrid.

Poor modelling can produce an output that looks convincing to managers but is so flawed that the results are dangerously misleading. On a project with unrealistically tight targets, poor risk analysis may thus become a tool that fosters management delusions about the prospects for success.

Project risk management is an integral component of ongoing project management. Project Managers sometimes ask, “when is the best time to conduct a CRA or CEVP® workshop?” This is answered by reviewing the status of project development. When a Project Management Plan is being developed and is kept current (i.e., appropriate to the level of project development), with a well-written scope that can be communicated and comprehended, along with the associated schedule and cost estimate, a project team can begin in earnest preparing for risk assessment meetings.

For personalized service and guidance through preparation for the risk assessment, contact the Cost Risk Estimating Management (CREM) Unit of the Strategic Analysis and Estimating Office (SAEO). The CREM staff can offer assistance through the process, including scheduling consultants and WSDOT resources to effect the completion of a quantitative analysis, through either the workshop process or use of the self-modeling spreadsheet.

When a project team prepares for a workshop, much of the work that is performed on a daily or regular basis becomes the input for the analysis. This includes scope of work, schedule estimate (with backup and assumptions), cost estimate (including the Basis of Estimate), assumptions, and backup information. Estimates are used to make financial decisions. Therefore, in order to facilitate this process, materials should be developed that result in an informed decision-making process. Capital Program Management System (CPMS) data requirements are listed in Exhibit 4-2.