Risk Quantification - Revision history

Waqaskhld at 19:52, 22 September 2017

2017-09-22T19:52:46Z

← Older revision		Revision as of 19:52, 22 September 2017
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	===Importance===		===Importance===
	[[File:Why projects fail.png\|thumb\| \|upright=2.5\|\|right\|\|Figure 2: Causes of project failure (source: https://media.licdn.com/mpr/mpr/shrinknp_800_800/AAEAAQAAAAAAAAg4AAAAJDVlMzhiNDM5LWJlMWUtNGU5Zi05ZTY4LTAzYWRhODM5YjhmYQ.png)]]		[[File:Why projects fail.png\|thumb\| \|upright=2.5\|\|right\|\|Figure 2: Causes of project failure (source: https://media.licdn.com/mpr/mpr/shrinknp_800_800/AAEAAQAAAAAAAAg4AAAAJDVlMzhiNDM5LWJlMWUtNGU5Zi05ZTY4LTAzYWRhODM5YjhmYQ.png)]]
	<div style="text-align: justify;">The term risk or risk assessment may sound like a modern scientific concept, but the idea of risk is as old as recorded human history. The gambling, the very essence of risk, was a popular pastime that inspired Pascal and Fermat’s revolutionary breakthrough into laws of probability <ref>[''Bernstein P.L., “Against the Gods: The remarkable story of risk”, John Wiley & Sons, New York, (1996).''] </ref>. However, Risk as a scientific field is quite young. Around 30-40 years ago scientific journals, papers, and conferences started to cover this idea and principles on how to assess and manage risk <ref>[''Aven T., “Risk assessment and risk management: Review of recent advances on their foundation”, European journal of operational research, (2016), Vol. 253, No. 1, pp. 1-13.'']</ref>. Figure 2 shows that 17% of projects were failed due to inadequate risk management. </div><br />		<div style="text-align: justify;">The term risk or risk assessment may sound like a modern scientific concept, but the idea of risk is as old as recorded human history. The gambling, the very essence of risk, was a popular pastime that inspired Pascal and Fermat’s revolutionary breakthrough into laws of probability <ref>[''Bernstein P.L., “Against the Gods: The remarkable story of risk”, John Wiley & Sons, New York, (1996).''] </ref>. However, Risk as a scientific field is quite young. Around 30-40 years ago scientific journals, papers, and conferences started to cover this idea and principles on how to assess and manage risk <ref>[''Aven T., “Risk assessment and risk management: Review of recent advances on their foundation”, European journal of operational research, (2016), Vol. 253, No. 1, pp. 1-13.'']</ref>. Figure 2 shows that 17% of projects were failed due to inadequate risk management.
			[writing in process...] </div><br />


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	Benefits of using decision tree analysis are ease of understanding and implementation, quantification of even little hard data, and a possibility to add several new scenarios. While disadvantages are biases of input data and increase in complexity for a large number of outcomes that are linked together. [http://en.wikipedia.org/wiki/Decision_tree] </div><br />		Benefits of using decision tree analysis are ease of understanding and implementation, quantification of even little hard data, and a possibility to add several new scenarios. While disadvantages are biases of input data and increase in complexity for a large number of outcomes that are linked together. [http://en.wikipedia.org/wiki/Decision_tree] </div><br />

			=Limitations and Challenges=
			<div style="text-align: justify;">One of the limitations in risk quantification is that probabilities are estimated either by past history or in some cases by expert opinion or intuition. Both of these cases cannot define the probability of an event with 100% certainty, which means no matter how much effort is put in risk quantification process, it can never be completely accurate. Another challenge is the quantification of the impact in term of cost or time. It is very difficult to correctly estimate the exact cost of the impact or consequence even with utmost care. Nonetheless, risk quantification provides contingencies in terms of costs and time, but still several unforeseeable events can occur that may result in a project failure. Hence, risk can be quantified to a certain extent, but full confidence level cannot be assured. Further, methods or tools that are used in risk quantification process of a project, as mentioned in section 2, try to reduce the uncertainty level to some extent and help build up confidence level but the inputs to these methods are also prone to limitations of intuition and hence pose limitations in accurate risk assessment.
			All these facts, make one questions that when risk assessment or quantification cannot guarantee the success of a project then why do managers invest so much effort and money into risk assessment. The answer lies in a famous phrase “better than nothing”. It is always better to perform risk assessment beforehand and be prepared and control for uncertain events than drastically act on uncertain events unprepared when they occur. [further writing in process....]
			</div><br />

			=Annotated Bibliography=
	~~==Limitations and Challenges==~~
	==Annotated Bibliography==
	==References==		==References==
	<references />		<references />

Waqaskhld at 17:05, 22 September 2017

2017-09-22T17:05:54Z

← Older revision		Revision as of 17:05, 22 September 2017
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	===Inputs and Outputs of Risk Quantification===		===Inputs and Outputs of Risk Quantification===
	In risk quantification process of a project, there are inputs that should be considered with delegate care and as a result of risk quantification process outputs are generated. According to PMBOK, following inputs are considered and outputs are produced in risk quantification process of any project:		In risk quantification process of a project, there are inputs that should be considered with delegate care and as a result of risk quantification process outputs are generated. According to PMBOK, following inputs are considered and outputs are produced in risk quantification process of any project:
	{\| class="wikitable"		{\| class="wikitable" style="margin-left: auto; margin-right: auto; border: none; width: 70%;"
			\|+ style="text-align: left;" \| Table 1: Inputs and Outputs to Risk Quantification in Project Management
	\|-		\|-
	! Inputs		! Inputs
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	\|}		\|}

	~~[[File:Risk Matrix of a project.jpg\|thumb\| \|upright=2.5\|\|right\|\|Figure 1: Example of risk matrix of a project (source: http://www.cbisco.com.au/wp-content/uploads/2014/06/aa.jpg)]]~~
	===Purpose and Concept ===		===Purpose and Concept ===

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	<div style="text-align: center;"><math>R = P\times I</math></div><br />		<div style="text-align: center;"><math>R = P\times I</math></div><br />

	[[File:Why projects fail.png\|thumb\| \|upright=2.5\|\|right\|\|Figure 2: Causes of project failure (source: https://media.licdn.com/mpr/mpr/shrinknp_800_800/AAEAAQAAAAAAAAg4AAAAJDVlMzhiNDM5LWJlMWUtNGU5Zi05ZTY4LTAzYWRhODM5YjhmYQ.png)]]

	<div style="text-align: justify;">Once risks are quantified then these are evaluated against a defined risk criteria or risk matrix. Red zone in a risk matrix may represents unacceptable risks, yellow zone as acceptable risk, and green zone as neglectable risks. For example, if an event has a likelihood of class “Likely” and it has a severity class “Catastrophic” then it may lie in red zone of risk matrix. This may mean that this risk is not acceptable and appropriate or immediate actions should be applied to lower this risk into acceptable zone. Figure 1 shows an example of risk matrix of a project. First column represents criteria for likelihood, where, first row represents criteria for consequence. Further, nature of any possible risk is defined based on both likelihood and consequence from low, moderate, high, to extreme. </div><br />		<div style="text-align: justify;">Once risks are quantified then these are evaluated against a defined risk criteria or risk matrix. Red zone in a risk matrix may represents unacceptable risks, yellow zone as acceptable risk, and green zone as neglectable risks. For example, if an event has a likelihood of class “Likely” and it has a severity class “Catastrophic” then it may lie in red zone of risk matrix. This may mean that this risk is not acceptable and appropriate or immediate actions should be applied to lower this risk into acceptable zone. Figure 1 shows an example of risk matrix of a project. First column represents criteria for likelihood, where, first row represents criteria for consequence. Further, nature of any possible risk is defined based on both likelihood and consequence from low, moderate, high, to extreme. </div><br />
			[[File:Risk Matrix of a project.jpg\|thumb\| \|upright=2.5\|\|center\|\|Figure 1: Example of risk matrix of a project (source: http://www.cbisco.com.au/wp-content/uploads/2014/06/aa.jpg)]]

	===Importance===		===Importance===
			[[File:Why projects fail.png\|thumb\| \|upright=2.5\|\|right\|\|Figure 2: Causes of project failure (source: https://media.licdn.com/mpr/mpr/shrinknp_800_800/AAEAAQAAAAAAAAg4AAAAJDVlMzhiNDM5LWJlMWUtNGU5Zi05ZTY4LTAzYWRhODM5YjhmYQ.png)]]
	<div style="text-align: justify;">The term risk or risk assessment may sound like a modern scientific concept, but the idea of risk is as old as recorded human history. The gambling, the very essence of risk, was a popular pastime that inspired Pascal and Fermat’s revolutionary breakthrough into laws of probability <ref>[''Bernstein P.L., “Against the Gods: The remarkable story of risk”, John Wiley & Sons, New York, (1996).''] </ref>. However, Risk as a scientific field is quite young. Around 30-40 years ago scientific journals, papers, and conferences started to cover this idea and principles on how to assess and manage risk <ref>[''Aven T., “Risk assessment and risk management: Review of recent advances on their foundation”, European journal of operational research, (2016), Vol. 253, No. 1, pp. 1-13.'']</ref>. Figure 2 shows that 17% of projects were failed due to inadequate risk management. </div><br />		<div style="text-align: justify;">The term risk or risk assessment may sound like a modern scientific concept, but the idea of risk is as old as recorded human history. The gambling, the very essence of risk, was a popular pastime that inspired Pascal and Fermat’s revolutionary breakthrough into laws of probability <ref>[''Bernstein P.L., “Against the Gods: The remarkable story of risk”, John Wiley & Sons, New York, (1996).''] </ref>. However, Risk as a scientific field is quite young. Around 30-40 years ago scientific journals, papers, and conferences started to cover this idea and principles on how to assess and manage risk <ref>[''Aven T., “Risk assessment and risk management: Review of recent advances on their foundation”, European journal of operational research, (2016), Vol. 253, No. 1, pp. 1-13.'']</ref>. Figure 2 shows that 17% of projects were failed due to inadequate risk management. </div><br />









	=Applications=		=Applications=
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	===Monte Carlo Analysis or Simulation===		===Monte Carlo Analysis or Simulation===
	<div style="text-align: justify;">Monte Carlo is a computerized mathematical simulation technique that is used to quantify risks in project management. This technique is helpful in seeing the probable outcomes of decisions and assesses the impact of risk that is useful in decision making [http://www.palisade.com/risk/monte_carlo_simulation.asp]. Most likely and least likely estimates of risks are provided for each event and then these estimates are summed together to calculate a range of possible outcome. Monte Carlo simulation then generates random values between the range and calculates the number of occurrences the value lies within each possible outcome. This probability is then distributed and the decision is made based on the most probable outcome.		<div style="text-align: justify;">Monte Carlo is a computerized mathematical simulation technique that is used to quantify risks in project management. This technique is helpful in seeing the probable outcomes of decisions and assesses the impact of risk that is useful in decision making [http://www.palisade.com/risk/monte_carlo_simulation.asp]. Most likely and least likely estimates of risks are provided for each event and then these estimates are summed together to calculate a range of possible outcome. Monte Carlo simulation then generates random values between the range and calculates the number of occurrences the value lies within each possible outcome. This probability is then distributed and the decision is made based on the most probable outcome.
	For example, if there are three tasks required in an e-learning project. Best case, most likely, and worst case estimates of all the tasks required are given in figure 6. It can be seen that the project is most likely to complete in between 11 and 23 days. Now for example, if Monte Carlo simulation is run 500 times generating random values between 11 and 23. The total number of times the simulation result was less than or equal to projected duration is calculated as shown in figure 5. Then, probability of each projected duration is calculated and distributed as shown in figure 6. It can be seen that, from figure 4, the most likely projected completion time is 17 days. But, as per figure 6, Monte Carlo simulation shows that likelihood of project completion in 17 days is almost 33%. Whereas, likelihood of project completion in 19 days is 88%. Hence, it can be estimated that the project will most likely complete in 19 to 20 days. (http://quantmleap.com/blog/2010/07/project-risk-management-and-the-application-of-monte-carlo-simulation/)		For example, if there are three tasks required in an e-learning project. Best case, most likely, and worst case estimates of all the tasks required are given in figure 5. It can be seen that the project is most likely to complete in between 11 and 23 days. Now for example, if Monte Carlo simulation is run 500 times generating random values between 11 and 23. The total number of times the simulation result was less than or equal to projected duration is calculated as shown in figure 6. Then, the probability of each projected duration is calculated and distributed as shown in figure 7. It can be seen that, from figure 5, the most likely projected completion time is 17 days. But, as per figure 7, Monte Carlo simulation shows that likelihood of project completion in 17 days is almost 33%. Whereas, the likelihood of project completion in 19 days is 88%. Hence, it can be estimated that the project will most likely complete in 19 to 20 days. [http://quantmleap.com/blog/2010/07/project-risk-management-and-the-application-of-monte-carlo-simulation/]
	Monte Carlo simulation is usually used in cost and schedule estimation. It can also be used in large projects or programs. The benefits of using Monte Carlo are easiness of tool, numerical estimation, and greate level of confidence (http://quantmleap.com/blog/2010/07/project-risk-management-and-the-application-of-monte-carlo-simulation/). Whereas, drawbacks or challenges are the use of right distribution as wrong distribution may lead to wrong results, input estimates as right estimates are required to produce right results, and use of right mathematical formula in the software (http://abovethelaw.com/2016/05/finance-and-law-the-pros-and-cons-of-monte-carlo-simulations-in-valuation/).		Monte Carlo simulation is usually used in cost and schedule estimation. It can also be used in large projects or programs. The benefits of using Monte Carlo are easiness of tool, numerical estimation, and greate level of confidence [http://quantmleap.com/blog/2010/07/project-risk-management-and-the-application-of-monte-carlo-simulation/]. Whereas drawbacks or challenges are the use of right distribution as wrong distribution may lead to wrong results, input estimates as right estimates are required to produce right results, and use of right mathematical formula in the software.[http://abovethelaw.com/2016/05/finance-and-law-the-pros-and-cons-of-monte-carlo-simulations-in-valuation/]
	</div><br />		</div><br />
	[[File:Result of probability distribution after Monte Carlo simulation.png \|thumb\| \|upright=2.5\|\|center\|\|Figure 8: Result of probability distribution as a result of Monte Carlo simulation (source: http://quantmleap.com/blog/2010/07/project-risk-management-and-the-application-of-monte-carlo-simulation/)]]		[[File:Result of probability distribution after Monte Carlo simulation.png \|thumb\| \|upright=2.5\|\|center\|\|Figure 8: Result of probability distribution as a result of Monte Carlo simulation (source: http://quantmleap.com/blog/2010/07/project-risk-management-and-the-application-of-monte-carlo-simulation/)]]

Waqaskhld at 16:40, 22 September 2017

2017-09-22T16:40:58Z

@@ Line 32: / Line 32: @@
 |}
+[[File:Risk Matrix of a project.jpg|thumb| |upright=2.5||right||Figure 1: Example of risk matrix of a project (source: http://www.cbisco.com.au/wp-content/uploads/2014/06/aa.jpg)]]
 ===Purpose and Concept ===
 <div style="text-align: justify;">The objective of risk quantification is to prioritize them in terms of their severity and likelihood, so that appropriate action can be taken accordingly. In order to quantify risk, it needs to be identified first. Once risk is identified then it is analyzed in terms of probability of occurrence and impact that it could print on the outcome. The probability is assigned based on the previous data of failure rates available for similar events in datasheets. Probability of failure on Demand (PFD) of an event or a component is calculated by following formula. </div><br />
@@ Line 52: / Line 51: @@
 =Applications=
 [[File:Example of Expert Opinion.png|thumb| |upright=2.5||right||Figure 3: Example of expert opinion in a project (source: Yildiz A. Z. et al, “Using expert opinion for risk assessment: a case study of a construction project utilizing a risk mapping tool “,  Procedia - Social and Behavioral Sciences, (2014), Vol. 119, pp. 519-528.)]]
-<div style="text-align: justify;">Several tools and techniques are used in order to apply risk quantification in projects. PMBOK <ref name=Duncan2013 /> provides 6 methods that can be used in risk quantification process. These tools and techniques are described briefly below, along with application, advantages, and disadvantages of each tool. </div><br />
+===Expert Opinion===

Waqaskhld at 15:16, 22 September 2017

2017-09-22T15:16:37Z

← Older revision		Revision as of 15:16, 22 September 2017
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	===Purpose and Concept ===		===Purpose and Concept ===

			[[File:Risk Matrix of a project.jpg\|thumb\| \|upright=2.5\|\|right\|\|Figure 1: Example of risk matrix of a project (source: http://www.cbisco.com.au/wp-content/uploads/2014/06/aa.jpg)]]
	<div style="text-align: justify;">The objective of risk quantification is to prioritize them in terms of their severity and likelihood, so that appropriate action can be taken accordingly. In order to quantify risk, it needs to be identified first. Once risk is identified then it is analyzed in terms of probability of occurrence and impact that it could print on the outcome. The probability is assigned based on the previous data of failure rates available for similar events in datasheets. Probability of failure on Demand (PFD) of an event or a component is calculated by following formula. </div><br />		<div style="text-align: justify;">The objective of risk quantification is to prioritize them in terms of their severity and likelihood, so that appropriate action can be taken accordingly. In order to quantify risk, it needs to be identified first. Once risk is identified then it is analyzed in terms of probability of occurrence and impact that it could print on the outcome. The probability is assigned based on the previous data of failure rates available for similar events in datasheets. Probability of failure on Demand (PFD) of an event or a component is calculated by following formula. </div><br />

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	<div style="text-align: center;"><math>R = P\times I</math></div><br />		<div style="text-align: center;"><math>R = P\times I</math></div><br />

	[[File:~~Risk Matrix of a project~~.~~jpg~~\|thumb\| \|upright=2.5\|\|right\|\|Figure 1: ~~Example of risk matrix~~ of a project (source: ~~http~~://~~www~~.~~cbisco~~.com~~.au/wp-content~~/~~uploads~~/~~2014~~/06/aa.~~jpg~~)]]		[[File:Why projects fail.png\|thumb\| \|upright=2.5\|\|right\|\|Figure 2: Causes of project failure (source: https://media.licdn.com/mpr/mpr/shrinknp_800_800/AAEAAQAAAAAAAAg4AAAAJDVlMzhiNDM5LWJlMWUtNGU5Zi05ZTY4LTAzYWRhODM5YjhmYQ.png)]]

	<div style="text-align: justify;">Once risks are quantified then these are evaluated against a defined risk criteria or risk matrix. Red zone in a risk matrix may represents unacceptable risks, yellow zone as acceptable risk, and green zone as neglectable risks. For example, if an event has a likelihood of class “Likely” and it has a severity class “Catastrophic” then it may lie in red zone of risk matrix. This may mean that this risk is not acceptable and appropriate or immediate actions should be applied to lower this risk into acceptable zone. Figure 1 shows an example of risk matrix of a project. First column represents criteria for likelihood, where, first row represents criteria for consequence. Further, nature of any possible risk is defined based on both likelihood and consequence from low, moderate, high, to extreme. </div><br />		<div style="text-align: justify;">Once risks are quantified then these are evaluated against a defined risk criteria or risk matrix. Red zone in a risk matrix may represents unacceptable risks, yellow zone as acceptable risk, and green zone as neglectable risks. For example, if an event has a likelihood of class “Likely” and it has a severity class “Catastrophic” then it may lie in red zone of risk matrix. This may mean that this risk is not acceptable and appropriate or immediate actions should be applied to lower this risk into acceptable zone. Figure 1 shows an example of risk matrix of a project. First column represents criteria for likelihood, where, first row represents criteria for consequence. Further, nature of any possible risk is defined based on both likelihood and consequence from low, moderate, high, to extreme. </div><br />

	===Importance===		===Importance===
	[[File:Why projects fail.png\|thumb\| \|upright=2.5\|\|right\|\|Figure 2: Causes of project failure (source: https://media.licdn.com/mpr/mpr/shrinknp_800_800/AAEAAQAAAAAAAAg4AAAAJDVlMzhiNDM5LWJlMWUtNGU5Zi05ZTY4LTAzYWRhODM5YjhmYQ.png)]]
	<div style="text-align: justify;">The term risk or risk assessment may sound like a modern scientific concept, but the idea of risk is as old as recorded human history. The gambling, the very essence of risk, was a popular pastime that inspired Pascal and Fermat’s revolutionary breakthrough into laws of probability <ref>[''Bernstein P.L., “Against the Gods: The remarkable story of risk”, John Wiley & Sons, New York, (1996).''] </ref>. However, Risk as a scientific field is quite young. Around 30-40 years ago scientific journals, papers, and conferences started to cover this idea and principles on how to assess and manage risk <ref>[''Aven T., “Risk assessment and risk management: Review of recent advances on their foundation”, European journal of operational research, (2016), Vol. 253, No. 1, pp. 1-13.'']</ref>. Figure 2 shows that 17% of projects were failed due to inadequate risk management. </div><br />		<div style="text-align: justify;">The term risk or risk assessment may sound like a modern scientific concept, but the idea of risk is as old as recorded human history. The gambling, the very essence of risk, was a popular pastime that inspired Pascal and Fermat’s revolutionary breakthrough into laws of probability <ref>[''Bernstein P.L., “Against the Gods: The remarkable story of risk”, John Wiley & Sons, New York, (1996).''] </ref>. However, Risk as a scientific field is quite young. Around 30-40 years ago scientific journals, papers, and conferences started to cover this idea and principles on how to assess and manage risk <ref>[''Aven T., “Risk assessment and risk management: Review of recent advances on their foundation”, European journal of operational research, (2016), Vol. 253, No. 1, pp. 1-13.'']</ref>. Figure 2 shows that 17% of projects were failed due to inadequate risk management. </div><br />

	=Applications=		=Applications=
			[[File:Example of Expert Opinion.png\|thumb\| \|upright=2.5\|\|right\|\|Figure 3: Example of expert opinion in a project (source: Yildiz A. Z. et al, “Using expert opinion for risk assessment: a case study of a construction project utilizing a risk mapping tool “, Procedia - Social and Behavioral Sciences, (2014), Vol. 119, pp. 519-528.)]]
	<div style="text-align: justify;">Several tools and techniques are used in order to apply risk quantification in projects. PMBOK <ref name=Duncan2013 /> provides 6 methods that can be used in risk quantification process. These tools and techniques are described briefly below, along with application, advantages, and disadvantages of each tool. </div><br />		<div style="text-align: justify;">Several tools and techniques are used in order to apply risk quantification in projects. PMBOK <ref name=Duncan2013 /> provides 6 methods that can be used in risk quantification process. These tools and techniques are described briefly below, along with application, advantages, and disadvantages of each tool. </div><br />

	===Expert Opinion:===		===Expert Opinion:===
	~~Merriam~~-~~Wesbster (~~https://www.merriam-webster.com/dictionary/expert%20opinion) defines expert opinion as, “a belief or judgment about something given by an expert on the subject”. Expert opinion is one of the risk quantification techniques. In expert opinion, risks are quantified based on the opinions of experts or senior executives based on their experiences. One of the best ways to use expert opinion is to conduct risk assessments workshops where experts can discuss and consequently assign values to the to the risks identified. But, this may lead to group bias and can affect the outcome. This bias can be minimized by using Delphi method, but there still be a chance of high variation in opinion. (http://www.theactuary.com/archive/old-articles/part-3/risk-quantification-techniques/)		<div style="text-align: justify;">[https://www.merriam-webster.com/dictionary/expert%20opinion Merriam Webster]defines expert opinion as, “a belief or judgment about something given by an expert on the subject”. Expert opinion is one of the risk quantification techniques. In expert opinion, risks are quantified based on the opinions of experts or senior executives based on their experiences. One of the best ways to use expert opinion is to conduct risk assessments workshops where experts can discuss and consequently assign values to the to the risks identified. But, this may lead to group bias and can affect the outcome. This bias can be minimized by using Delphi method, but there still be a chance of high variation in opinion. [http://www.theactuary.com/archive/old-articles/part-3/risk-quantification-techniques/] Although, expert opinion is not as concrete, as other methods may be, and may prone to personal subjectivity, but it is a very useful tool for risk quantification when data is scarce or no sufficient past experience is available or where risks are very company or project specific.[http://www.theactuary.com/archive/old-articles/part-3/risk-quantification-techniques/] Figure 3 shows an example of risk quantification using expert opinion in a case study on construction project conducted by Yildiz et al. (2014).<ref>[Yildiz A. Z. et al, “Using expert opinion for risk assessment: a case study of a construction project utilizing a risk mapping tool “, Procedia - Social and Behavioral Sciences, (2014), Vol. 119, pp. 519-528.]</ref> The ratings are estimated ratings, quantified by SEM (Structural Equation Modeling) [https://en.wikipedia.org/wiki/Structural_equation_modeling] software based on the sub risks and attributes ratings assigned by experts using 1-5 Likert Scale.[https://da.wikipedia.org/wiki/Likert-skala]</div><br />

	Although, expert opinion is not as concrete, as other methods may be, and may prone to personal subjectivity, but it is a very useful tool for risk quantification when data is scarce or no sufficient past experience is available or where risks are very company or project specific. (http://www.theactuary.com/archive/old-articles/part-3/risk-quantification-techniques/)

	~~Table below~~ shows an example of risk quantification using expert opinion in a case study on construction project conducted by Yildiz et al. (2014). The ratings are estimated ratings, quantified by SEM (Structural Equation Modeling) software based on the sub risks and attributes ratings assigned by experts using 1-5 Likert Scale.

Waqaskhld at 14:48, 22 September 2017

2017-09-22T14:48:30Z

← Older revision		Revision as of 14:48, 22 September 2017
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	== Introduction ==		= Introduction =
	====Definition====		===Definition===

	<div style="text-align: center;">Risk quantification is a process of evaluating the risks that have been identified and developing the data that will be needed for making decisions as to what should be done about them [http://pmtips.net/blog-new/defining-risk-management-part-4-risk-quantification]. PMBOK <ref>[Duncan W. R., “A Guide to Project Management Body of Knowledge (PMBOK)”, PMI Standards Committee, ~~Ed. 5~~.] </ref> describes risk quantification as evaluating risks and risk interactions to assess the range of possible outcomes.</div><br />		<div style="text-align: center;">Risk quantification is a process of evaluating the risks that have been identified and developing the data that will be needed for making decisions as to what should be done about them [http://pmtips.net/blog-new/defining-risk-management-part-4-risk-quantification]. PMBOK <ref name=Duncan2013 >[Duncan W. R., “A Guide to Project Management Body of Knowledge (PMBOK)”, PMI Standards Committee, (2013).] </ref> describes risk quantification as evaluating risks and risk interactions to assess the range of possible outcomes.</div><br />

	====Inputs and Outputs of Risk Quantification====		===Inputs and Outputs of Risk Quantification===
	In risk quantification process of a project, there are inputs that should be considered with delegate care and as a result of risk quantification process outputs are generated. According to PMBOK, following inputs are considered and outputs are produced in risk quantification process of any project:		In risk quantification process of a project, there are inputs that should be considered with delegate care and as a result of risk quantification process outputs are generated. According to PMBOK, following inputs are considered and outputs are produced in risk quantification process of any project:
	{\| class="wikitable"		{\| class="wikitable"
Line 43:		Line 43:
	<div style="text-align: center;"><math>R = P\times I</math></div><br />		<div style="text-align: center;"><math>R = P\times I</math></div><br />

			[[File:Risk Matrix of a project.jpg\|thumb\| \|upright=2.5\|\|right\|\|Figure 1: Example of risk matrix of a project (source: http://www.cbisco.com.au/wp-content/uploads/2014/06/aa.jpg)]]
	<div style="text-align: justify;">Once risks are quantified then these are evaluated against a defined risk criteria or risk matrix. Red zone in a risk matrix may represents unacceptable risks, yellow zone as acceptable risk, and green zone as neglectable risks. For example, if an event has a likelihood of class “Likely” and it has a severity class “Catastrophic” then it may lie in red zone of risk matrix. This may mean that this risk is not acceptable and appropriate or immediate actions should be applied to lower this risk into acceptable zone. Figure 1 shows an example of risk matrix of a project. First column represents criteria for likelihood, where, first row represents criteria for consequence. Further, nature of any possible risk is defined based on both likelihood and consequence from low, moderate, high, to extreme. </div><br />		<div style="text-align: justify;">Once risks are quantified then these are evaluated against a defined risk criteria or risk matrix. Red zone in a risk matrix may represents unacceptable risks, yellow zone as acceptable risk, and green zone as neglectable risks. For example, if an event has a likelihood of class “Likely” and it has a severity class “Catastrophic” then it may lie in red zone of risk matrix. This may mean that this risk is not acceptable and appropriate or immediate actions should be applied to lower this risk into acceptable zone. Figure 1 shows an example of risk matrix of a project. First column represents criteria for likelihood, where, first row represents criteria for consequence. Further, nature of any possible risk is defined based on both likelihood and consequence from low, moderate, high, to extreme. </div><br />
	~~[[File:RiskMatrix.png\|thumb\| \|upright=2.5\|\|none\|\|Figure 1: Example of risk matrix of airbag deployment in ventilating duct of a coal mine.]]~~

			===Importance===
			[[File:Why projects fail.png\|thumb\| \|upright=2.5\|\|right\|\|Figure 2: Causes of project failure (source: https://media.licdn.com/mpr/mpr/shrinknp_800_800/AAEAAQAAAAAAAAg4AAAAJDVlMzhiNDM5LWJlMWUtNGU5Zi05ZTY4LTAzYWRhODM5YjhmYQ.png)]]
			<div style="text-align: justify;">The term risk or risk assessment may sound like a modern scientific concept, but the idea of risk is as old as recorded human history. The gambling, the very essence of risk, was a popular pastime that inspired Pascal and Fermat’s revolutionary breakthrough into laws of probability <ref>[''Bernstein P.L., “Against the Gods: The remarkable story of risk”, John Wiley & Sons, New York, (1996).''] </ref>. However, Risk as a scientific field is quite young. Around 30-40 years ago scientific journals, papers, and conferences started to cover this idea and principles on how to assess and manage risk <ref>[''Aven T., “Risk assessment and risk management: Review of recent advances on their foundation”, European journal of operational research, (2016), Vol. 253, No. 1, pp. 1-13.'']</ref>. Figure 2 shows that 17% of projects were failed due to inadequate risk management. </div><br />

			=Applications=
			<div style="text-align: justify;">Several tools and techniques are used in order to apply risk quantification in projects. PMBOK <ref name=Duncan2013 /> provides 6 methods that can be used in risk quantification process. These tools and techniques are described briefly below, along with application, advantages, and disadvantages of each tool. </div><br />

			===Expert Opinion:===
			Merriam-Wesbster (https://www.merriam-webster.com/dictionary/expert%20opinion) defines expert opinion as, “a belief or judgment about something given by an expert on the subject”. Expert opinion is one of the risk quantification techniques. In expert opinion, risks are quantified based on the opinions of experts or senior executives based on their experiences. One of the best ways to use expert opinion is to conduct risk assessments workshops where experts can discuss and consequently assign values to the to the risks identified. But, this may lead to group bias and can affect the outcome. This bias can be minimized by using Delphi method, but there still be a chance of high variation in opinion. (http://www.theactuary.com/archive/old-articles/part-3/risk-quantification-techniques/)

			Although, expert opinion is not as concrete, as other methods may be, and may prone to personal subjectivity, but it is a very useful tool for risk quantification when data is scarce or no sufficient past experience is available or where risks are very company or project specific. (http://www.theactuary.com/archive/old-articles/part-3/risk-quantification-techniques/)

			Table below shows an example of risk quantification using expert opinion in a case study on construction project conducted by Yildiz et al. (2014). The ratings are estimated ratings, quantified by SEM (Structural Equation Modeling) software based on the sub risks and attributes ratings assigned by experts using 1-5 Likert Scale.

	~~====Importance====~~
	<div style="text-align: justify;">The term risk or risk assessment may sound like a modern scientific concept, but the idea of risk is as old as recorded human history. The gambling, the very essence of risk, was a popular pastime that inspired Pascal and Fermat’s revolutionary breakthrough into laws of probability <ref>[''Bernstein P.L., “Against the Gods: The remarkable story of risk”, John Wiley & Sons, New York, (1996).''] </ref>. However, Risk as a scientific field is quite young. Around 30-40 years ago scientific journals, papers, and conferences started to cover this idea and principles on how to assess and manage risk <ref>[''Aven T., “Risk assessment and risk management: Review of recent advances on their foundation”, European journal of operational research, (2016), Vol. 253, No. 1, pp. 1-13.''] </ref>. </div><br />

	~~==Applications==~~
	~~====Methods====~~
	~~====Real life applications====~~
	==Limitations and Challenges==		==Limitations and Challenges==
	==Annotated Bibliography==		==Annotated Bibliography==
	==References==		==References==
	<references />		<references />

Waqaskhld at 13:58, 22 September 2017

2017-09-22T13:58:47Z

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	== Introduction ==		== Introduction ==
	====Definition ~~and Concept~~====		====Definition====

	<div style="text-align: center;">~~'' "~~Risk quantification is a process of evaluating the risks that have been identified and developing the data that will be needed for making decisions as to what should be done about them~~" ''~~[http://pmtips.net/blog-new/defining-risk-management-part-4-risk-quantification]</div><br />		<div style="text-align: center;">Risk quantification is a process of evaluating the risks that have been identified and developing the data that will be needed for making decisions as to what should be done about them [http://pmtips.net/blog-new/defining-risk-management-part-4-risk-quantification]. PMBOK <ref>[Duncan W. R., “A Guide to Project Management Body of Knowledge (PMBOK)”, PMI Standards Committee, Ed. 5.] </ref> describes risk quantification as evaluating risks and risk interactions to assess the range of possible outcomes.</div><br />

	~~<div style~~=~~"text-align: justify;">The objective~~ of risk quantification ~~is to prioritize them in terms~~ of ~~their severity and likelihood~~, so that ~~appropriate action can~~ be ~~taken accordingly~~. ~~In order~~ to ~~quantify~~ risk, ~~it needs~~ to be ~~identified first~~. ~~Once~~ risk ~~is identified then it is analyzed in terms~~ of ~~probability~~ of ~~occurrence~~ and ~~impact~~ that ~~it could print on~~ the outcome. ~~The probability is assigned based on~~ the ~~previous data~~ of ~~failure rates available for similar events or products in datasheets. Probability~~ of ~~Failure on Demand (PFD)~~ of ~~an event or~~ a ~~component is calculated by following formula. </div><br />~~		====Inputs and Outputs of Risk Quantification====
			In risk quantification process of a project, there are inputs that should be considered with delegate care and as a result of risk quantification process outputs are generated. According to PMBOK, following inputs are considered and outputs are produced in risk quantification process of any project:
			{\| class="wikitable"
			\|-
			! Inputs
			! Outputs
			\|-
			\| '''Stakeholder Risk Tolerance:''' ''Every organization and different individuals may have different tolerance for risk value''
			\| '''Opportunities to Pursue, Threats to Respond to:''' ''The list of opportunities that should be pursued and threats that should be taken care of.''
			\|-
			\| '''Sources of Risks:''' ''Categories of possible risk events that may negatively affect the outcome of a project. For example, Designs errors, stakeholder actions, or poor estimates etc.''
			\| '''Opportunities to Ignore, Threats to Accept:''' ''List of opportunities that can be ignored and threats that can be accepted.''
			\|-
			\| '''Potential Risk Events:''' ''Discrete occurrences that can occur during a project that may affect the outcome of the project. Such as natural disaster or departure of key member etc.''
			\|
			\|-
			\| '''Cost Estimates:''' ''Assessment of likely cost required to complete the project activities.''
			\|
			\|-
			\| '''Activity Duration Estimate:''' ''Quantitative assessment of likely number of work period required to activities of a project''
			\|
			\|}

	~~<div style="text-align: center;"><math>PFD = 1/2 \times Test Interval (T) \times Failure Rate (F)</math></div><br />~~

	~~[[File:Likelihood.png\|thumb\| \|upright~~=~~2.5\|\|Table 1: Example of criteria for likelihood classification of events.]]~~		===Purpose and Concept ===
	<div style="text-align: justify;">~~Once probabilities of all events are calculated, a criterion for likelihood~~ of ~~all the events~~ is ~~defined. For example, if a specific event may occur~~ in ~~exceptional circumstances then its~~ likelihood can be assigned ~~as class “A” or “Unlikely”~~. ~~Table 1 shows an example~~ of ~~likelihood classification~~ of ~~events~~.</div><br />
			<div style="text-align: justify;">The objective of risk quantification is to prioritize them in terms of their severity and likelihood, so that appropriate action can be taken accordingly. In order to quantify risk, it needs to be identified first. Once risk is identified then it is analyzed in terms of probability of occurrence and impact that it could print on the outcome. The probability is assigned based on the previous data of failure rates available for similar events in datasheets. Probability of failure on Demand (PFD) of an event or a component is calculated by following formula. </div><br />

	~~[[File:Severity criteria.png\|thumb\| \|upright=2.5\|\|Table 2: Example of criteria for severity classification of events.]]~~		<div style="text-align: center;"><math>PFD = 1/2 \times Test Interval (T) \times Failure Rate (F)</math></div><br />
	<div style="text-align: ~~justify~~;">In the similar way, severity of the events is also classified. For example, if an event may result in extensive damage or its impact may cost for more than 10 million dollars then this event can be classified as class “1” or “catastrophic”. An example of severity classification is given in Table 2.</div><br />

	The risk(R) is calculated by multiplying probability(P) with the impact(I) or severity.		<div style="text-align: justify;">Once probabilities of all events are calculated, a criteria for likelihood of all the events is defined. For example, if a specific event may occur in exceptional circumstances, like for example <3% chance of occurance, then its likelihood can be assigned as “Rare”. In the similar way, severity or consequence of the events on project is also classified. For example if an event may result in abandonment of project then it can be classified as “Catastrophic” or if it may result in delay of 50% of schedule or 50% of additional cost then it may be classified as “Major”. The risk(R) is calculated by multiplying probability(P) with the impact(I) or severity.</div><br />

	<div style="text-align: center;"><math>R = P\times I</math></div><br />		<div style="text-align: center;"><math>R = P\times I</math></div><br />

	<div style="text-align: justify;">Once risks are quantified then these are evaluated against a defined risk criteria or risk matrix. Red zone in a risk matrix may ~~mean~~ unacceptable risks, yellow zone ~~may mean~~ acceptable risk, and green zone ~~may mean~~ neglectable risks. For example, if an event has a likelihood of class ~~“D” (Occasional)~~ and it has ~~the~~ severity class ~~“1” (Catastrophic)~~ then it may lie in red zone of risk matrix. This may mean that appropriate or immediate actions should be applied to lower this risk into acceptable zone. Figure 1 shows an example of risk matrix of ~~airbag deployment in air duct~~ of ~~coal mine~~. </div><br />		<div style="text-align: justify;">Once risks are quantified then these are evaluated against a defined risk criteria or risk matrix. Red zone in a risk matrix may represents unacceptable risks, yellow zone as acceptable risk, and green zone as neglectable risks. For example, if an event has a likelihood of class “Likely” and it has a severity class “Catastrophic” then it may lie in red zone of risk matrix. This may mean that this risk is not acceptable and appropriate or immediate actions should be applied to lower this risk into acceptable zone. Figure 1 shows an example of risk matrix of a project. First column represents criteria for likelihood, where, first row represents criteria for consequence. Further, nature of any possible risk is defined based on both likelihood and consequence from low, moderate, high, to extreme. </div><br />
	[[File:RiskMatrix.png\|thumb\| \|upright=2.5\|\|none\|\|Figure 1: Example of risk matrix of airbag deployment in ventilating duct of a coal mine.]]		[[File:RiskMatrix.png\|thumb\| \|upright=2.5\|\|none\|\|Figure 1: Example of risk matrix of airbag deployment in ventilating duct of a coal mine.]]

Waqaskhld at 16:50, 17 September 2017

2017-09-17T16:50:36Z

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	~~== Abstract ==~~		<div style="text-align: justify;">Humanity is quite familiar with the concept of risk or uncertainty since the beginning of recorded history. The difference between risk and uncertainty is that the risk can be quantified, while uncertainty is rather a vague concept that cannot be quantified. Poor risk assessment may lead to project failures or accidents, hence appropriate risk quantification is very important. However, to quantify the risk, once it has been identified, in order to remove or reduce it and take a decisive action, is a big challenge. Risks are quantified by using likelihood or probability of an event to occur and its impact on the outcome or situation. Risks then can be categorized into acceptable or not acceptable risks and further actions are taken accordingly. </div>
	<div style="text-align: justify;">~~Human beings are~~ familiar with the concept of risk or uncertainty since the beginning. The difference between risk and uncertainty is that the risk can be quantified. Poor risk assessment may lead to project failures or accidents, hence appropriate risk quantification is very important. However, to quantify the risk, once it has been identified, in order to remove or reduce it and take a decisive action is a big challenge. Risks are quantified by using likelihood or probability of an event to occur and its impact on the outcome or situation. Risks then can be categorized into acceptable or not acceptable risks and further actions are taken accordingly. </div>~~<br />~~		<div style="text-align: justify;">This article substantiates the concept of risk quantification and reviews the methods that are used in risk quantification process. Critical content analysis and literature review are carried out in order to draft this article. It is found out that risk quantification plays a significant role prior to initiate any project, program, or portfolio as it helps pinpoint possible risks involved and enables managers to take necessary precautions. It applies to every field of life from medical, projects, construction, safety and etc. and its criticality cannot be overlooked. In order to highlight the importance and challenges that are faced during risk quantification, applications of risk quantification and limitations or new challenges are analyzed briefly in this article.</div>

	<div style="text-align: justify;">This article ~~discusses~~ the ~~importance~~ of risk quantification and reviews the methods that are used in risk quantification process. ~~Risk~~ quantification applies ~~into~~ every field of life from medical, projects, construction, to safety. ~~Applications~~ of risk ~~quantifications are discussed~~ and limitations or new challenges are analyzed briefly in this article.</div>

Waqaskhld at 19:05, 14 September 2017

2017-09-14T19:05:06Z

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	====Importance====		====Importance====
	<div style="text-align: justify;">The term risk or risk assessment may sound like a modern scientific concept, but the idea of risk is as old as recorded human history. The gambling, the very essence of risk, was a popular pastime that inspired Pascal and Fermat’s revolutionary breakthrough into laws of probability (Bernstein, 1996). However, Risk as a scientific field is quite young. Around 30-40 years ago scientific journals, papers, and conferences started to cover this idea and principles on how to assess and manage risk (Aven, 2016). </div><br />		<div style="text-align: justify;">The term risk or risk assessment may sound like a modern scientific concept, but the idea of risk is as old as recorded human history. The gambling, the very essence of risk, was a popular pastime that inspired Pascal and Fermat’s revolutionary breakthrough into laws of probability <ref>[''Bernstein P.L., “Against the Gods: The remarkable story of risk”, John Wiley & Sons, New York, (1996).''] </ref>. However, Risk as a scientific field is quite young. Around 30-40 years ago scientific journals, papers, and conferences started to cover this idea and principles on how to assess and manage risk <ref>[''Aven T., “Risk assessment and risk management: Review of recent advances on their foundation”, European journal of operational research, (2016), Vol. 253, No. 1, pp. 1-13.''] </ref>. </div><br />

	==Applications==		==Applications==
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	==Annotated Bibliography==		==Annotated Bibliography==
	==References==		==References==
			<references />

Waqaskhld at 18:45, 14 September 2017

2017-09-14T18:45:42Z

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	<div style="text-align: justify;">Once risks are quantified then these are evaluated against a defined risk criteria or risk matrix. Red zone in a risk matrix may mean unacceptable risks, yellow zone may mean acceptable risk, and green zone may mean neglectable risks. For example, if an event has a likelihood of class “D” (Occasional) and it has the severity class “1” (Catastrophic) then it may lie in red zone of risk matrix. This may mean that appropriate or immediate actions should be applied to lower this risk into acceptable zone. Figure 1 shows an example of risk matrix of airbag deployment in air duct of coal mine. </div><br />		<div style="text-align: justify;">Once risks are quantified then these are evaluated against a defined risk criteria or risk matrix. Red zone in a risk matrix may mean unacceptable risks, yellow zone may mean acceptable risk, and green zone may mean neglectable risks. For example, if an event has a likelihood of class “D” (Occasional) and it has the severity class “1” (Catastrophic) then it may lie in red zone of risk matrix. This may mean that appropriate or immediate actions should be applied to lower this risk into acceptable zone. Figure 1 shows an example of risk matrix of airbag deployment in air duct of coal mine. </div><br />
	[[File:RiskMatrix.png\|thumb\| \|upright=2.5\|\|none\|\|~~Table 2~~: Example of risk matrix of airbag deployment in ventilating duct of a coal mine.]]		[[File:RiskMatrix.png\|thumb\| \|upright=2.5\|\|none\|\|Figure 1: Example of risk matrix of airbag deployment in ventilating duct of a coal mine.]]

Waqaskhld: /* Importance */

2017-09-14T18:42:40Z

Importance

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	====Importance====		====Importance====
	<div style="text-align: justify;">The term risk or risk assessment may sound like a modern scientific concept, but the idea of risk is as old as recorded human history. The gambling, the very essence of risk, was a popular pastime that inspired Pascal and Fermat’s revolutionary breakthrough into laws of probability (Bernstein, 1996). However, Risk as a scientific field is quite young. Around 30-40 years ago scientific journals, papers, and conferences started to cover this idea and principles on how to assess and manage risk (Aven, 2016). </div><br />		<div style="text-align: justify;">The term risk or risk assessment may sound like a modern scientific concept, but the idea of risk is as old as recorded human history. The gambling, the very essence of risk, was a popular pastime that inspired Pascal and Fermat’s revolutionary breakthrough into laws of probability (Bernstein, 1996). However, Risk as a scientific field is quite young. Around 30-40 years ago scientific journals, papers, and conferences started to cover this idea and principles on how to assess and manage risk (Aven, 2016). </div><br />



	==Applications==		==Applications==