Effective risk analysis and management is fundamental to project success. Irrespective of the size or scale of your project, delivering it on time and within budget (not to mention preserving stakeholder confidence) is nigh on impossible if you haven’t taken the time to identify, analyze, categorize, prioritize, and gauge the impact of external risks before work commences.
Two well-established methodologies dominate risk analysis: these being qualitative and quantitative. Yet, despite their universality, a surprising number of people within the project management bubble still struggle to distinguish between them.
In this article, we aim to clear up this confusion.
Subjective vs. Objective
The most obvious difference between qualitative and quantitative risk analysis is their approach to the process.
Qualitative risk analysis tends to be more subjective. It focuses on identifying risks to measure both the likelihood of a specific risk event occurring during the project life cycle and the impact it will have on the overall schedule should it hit. The goal being to determine severity. Results are then recorded in a risk assessment matrix (or any other form of intuitive graphical report) in order to communicate outstanding hazards to stakeholders.
Quantitative risk analysis, on the other hand, is objective. It uses verifiable data to analyse the effects of risk in terms of cost overruns, scope creep, resource consumption, and schedule delays. Ultimately, the purpose is the same; the difference is that it takes a more scientific, data-intensive approach.
In layman’s terms, quantitative risk analysis assigns a numerical value to extant risks — risk A has a 40% chance of occurring, based on quantifiable data (fluctuations in resource costs, average activity completion time, logistics etc.) and a 15% chance of causing a delay of X number of days. It’s thus entirely dependent upon the quantity and accuracy of your data.
Qualitative vs Quantitative. Which is better for risk?
Based on that description alone, it might sound like the quantitative approach is the more reliable of the two. But that isn’t the case. By ranking severity in broader terms, qualitative risk analysis is perfect for gauging probability and prioritizing risk in a way that’s easy for even the most numerophobic person to understand.
It also makes it easier to identify areas that require special attention — a risk event that has a high probability of rearing its ugly head or a catastrophic impact attached to it, for example. And can be employed at any stage of the project to manage risk in real-time.
That being said, a combined approach is unquestionably stronger. In essence, they’re two parts of a single whole that enable you to comprehensively determine ‘risk level’ of individual activities within the project schedule.
Complexity, Speed, and Ease of Use
It’s generally accepted that qualitative risk analysis is an older form of risk management than its quantitative counterpart. Not because human civilization’s earliest project managers had any particular bias towards the qualitative methodology; the answer is actually much simpler than that.
As we’ve already established, quantitative risk analysis relies on accurate statistical data to produce actionable insights — the kind that wasn’t available to our ancestors. So instead, they used a more subjective, qualitative approach to risk management, which had one key benefit: it was quicker and easier to implement. Indeed, this is partly the reason why it remains so important to this day.
Unlike quantitative risk analysis, which relies on robust risk models, a high volume of data, and, in some cases, specialist software, qualitative risk analysis can be performed at any time or stage of the project. Once risks have been identified, they’re fed into the risk assessment matrix mentioned above. This ranks likelihood and impact on a simple 1-5 scale: 1 being very low (probability of occurring/impact on schedule), 5 being very high.
This enables you to adapt to changing risk environments, ensuring the models on which the analysis is based are always accurate and up to date.
Nevertheless, quantitative risk analysis is vital, both in its own right and as a way of conducting further analysis on extant risks. This includes:
- Quantifying possible outcomes
- Clearing up any lingering uncertainty surrounding the results of your initial qualitative analysis
- Setting achievable targets (in terms of cost and schedule)
- Assessing the probability of successfully achieving these goals
High-risk industries in particular — mining, oil and gas, construction, and anything that presents a very real threat to the safety of frontline workers on a day-to-day basis — rely heavily on quantitative risk analysis. Indeed, it’s a legal requirement.
Fortunately, as technology has evolved, so too has the way we perform quantitative risk analysis. New tools are available to help improve the validity of your risk analysis and understand the steps needed to mitigate potential issues.
Qualitative and Quantitative Risk Analysis, All in One Place
What should be clear by this point is that one isn’t better than the other. If anything, qualitative and quantitative risk analysis should be conducted in tandem, giving you the best possible insight into the risks and their potential impact on the successful execution of your project.
For this reason, we’ve spent the last few years working on a brand-new tool: Safran Risk Manager.
Risk Manager takes a truly holistic approach to risk management and integrates seamlessly with Safran Risk, giving you all the data you need to perform effective analysis, from a single platform.
So, regardless of the size or complexity of your project, you’re armed with everything you need to make the best decisions for your organization.
Keep an eye on our website over the coming weeks and months for more information on our forthcoming product. If you’d like to learn more about risk management, check out our dedicated risk analysis page using the link below or get in touch with us directly.