Time
5 hours 14 minutes
Difficulty
Intermediate
CEU/CPE
10

Video Description

This lesson focuses on performing quantitative risk analysis. This deals with numbers: risk, cost and possible impact. [toggle_content title="Transcript"] The next process is perform quantitative risk analysis. Quantitative deals with numbers. Perform quantitative risk analysis creates project updates. The inputs are the risk management plan, cost management plan, schedule management plan, risk register, enterprise environmental factors and organizational process assets. Once again the risk management plan is going to tell you the methods and how to do quantitative risk analysis. Cost management plan is going to assess the risk dealing with numbers so the cost. Schedule management plan is going to provide you with schedule so you are going to be looking at risks that apply to time, your risk register has all your known risks, once again enterprise environmental factors and organizational process assets. The tools that are used are representation and data gathering techniques. You are going to be conducting interviews and you are going to try to figure out costs and time data by interviewing people to determine what those risks are and the impact on cost and time. Then you are going to try to model that data. Quantitative Risk Analysis and Modeling Techniques so it's going to be like be like Montecarlo. You are providing information to a computer software program that is going to run scenarios to figure out what the risk and cost impacts are and expert judgement. Quantitative risk analysis let's look at a Decision Tree Analysis, which is another way of doing it. This example is a decision to make a product locally or outsource. If you make it locally, it's going to cost the company, $500,000. If you outsource it, it is going to cost the company, $100,000. There is risk associated with that. If you make it locally there is a 90 percent that it is going to meet the quality needs to if you want to sell it. There is a 10 percent chance that it fails quality and you will be able to sell it at a reduced cost of $600,000. If its a success, its a million dollars in revenue. If it fails, its $600,000 dollars in revenue. Outsourcing its going to cost $100,000. There is a 50 percent chance that it succeeds and meets quality, and there is a 50 percent chance that it fails to meet quality. In this scenario, if it meets quality, your revenue will be a million dollars. If it fails, to meet the quality, it is $200,000. What does this information give us? If you notice there is four categories, and we are going to figure out what the profit is. Am taking a million dollars in revenue, and am subtracting what it cost so $500,000. That gives me $500, 000. I am multiplying it by 90 percent which is probability that will occur and am coming up with $450, 000. Price decision is also ten percent so am taking $600,000 which is revenue subtracting $500,000 which gives me $100,000 and am multiplying by ten percent. That will give me 10,000. If I add those two together, I get $460,000. That is my profit with the decision tree if I make it locally. That's the number I am looking at. Now if I am trying to determine if I should outsource, do the same thing down here. So am taking a million dollars which is revenue, I am subtracting 100,000 which is what it cost me. So I'm coming up with $900,000 and am multiplying it by fifty percent. This gives me $450,000. If it fails to meet quality, I can still sell it for $200,000 gives me 100,000 in profit multiplying that by fifty percent. That gives me $50,000 dollars. If I outsource, I come up with $500,000 potential revenue. That's how you use a decision tree. Do I make it locally or outsource. So running these numbers with what I have provided for percentage revenue and costs to give me profit, I will outsource cause this gives me $500,000 versus this gives me $460,000. [/toggle_content]

Video Transcription

00:04
the next process is perform quantitative risk analysis. It's a quantitative. Deals with numbers perform quantitative risk analysis creates project document updates.
00:13
The inputs are the risk management plan Cost management plan schedule Lansing Plan, Risk Register Enterprise, Environmental Factors and organizational process s. It's so once again, the risk management plan is gonna tell you
00:26
the methods on how to do do quantitative for risk analysis.
00:30
Cost management plan is gonna assess the risk dealing with
00:35
numbers. So cost
00:37
schedule management plan is gonna provide you with the schedule. So,
00:41
um,
00:42
you're gonna be looking at his first
00:44
risks that applied a time.
00:47
Your response, sir, has all your known risks. And there
00:51
and then, once again, enterprise environmental factors and always a slow process assets
00:56
the tools that are used, our data gathering in representation techniques. So basically going to be conducting interviews and you're gonna try to figure out cost and time data
01:06
by interviewing
01:07
people to determine what those risks are in the impact on cost in time.
01:12
Then you gonna try to model that data,
01:18
um,
01:21
quantitative risk analysis and modeling techniques. So this could be ah, like Monte Carlo. So you're providing information to a computer software program, which is going to run scenarios to figure out what the risk and cost impacts are
01:34
an expert judgment.
01:36
So
01:37
quantitative risk analysis. Look at Let's look at it, a Decision tree analysis, which is another way of doing it.
01:44
This example is,
01:45
um, a decision to make a product locally or outsource.
01:49
So
01:51
if you make it locally, it's gonna cost the company
01:55
$500,000.
01:57
If you outsource it, it's gonna cost a couple $100,000.
02:00
Well, these risks associated with that.
02:01
So with making it Luckily,
02:04
there's a 90% chance that it's going to meet. The quality needs to be able to sell it.
02:09
There's a 10% chance that it fells quality and
02:14
you'll be able to still sell it, but at a reduced cost of $600,000.
02:19
So if its success
02:22
$2 million in revenue if it fells at $600,000 in revenue
02:25
now outsourcing it's costing $100,000. There's a 50% chance
02:30
that it will succeed in meat quality, and there's a 50% chance that it allows to me quality
02:35
in this scenario.
02:37
For me, it's quality.
02:38
Um
02:39
your revenue would be a $1,000,000. If it fails to meet that quality, it would be $200,000.
02:46
So what is this information give us?
02:47
Well,
02:50
if you notice there's now, there's four categories
02:53
and we're gonna try to figure out
02:55
what the
02:58
profit is. So
03:00
I'm taking,
03:00
um
03:04
ah, $1,000,000 in revenue, and I'm subtracting what it costs of $500,000
03:08
that is being $500,000
03:10
multiplying it by 90%. What's his probability? It will occur and come with $450,000
03:19
for this decision. There's also 10%
03:21
So I'm taking $600,000.
03:23
What's this revenue?
03:24
It's attracting $500,000
03:28
which gives me 100,000 and I multiply it by 10%.
03:30
That will give me $10,000.
03:34
So when I add those two together, I get $460,000. So that is my profit,
03:40
Um,
03:43
with a decision tree. If I make it locally. So that's the number I'm looking at now.
03:47
If I'm tryingto
03:50
determine if I should outsource doing the same thing down here, so I'm taking
03:53
$1,000,000 which is revenue.
03:55
It's attracting $100,000 is what it cost me. Some coming up with $900,000 multiplying it by 50%.
04:02
This gives me 450,000.
04:05
Um,
04:08
and if it fails me quality,
04:11
I can still sell it for 200,000 because $100,000 in profit multiplying that by 50%.
04:17
That gives me $50,000.
04:19
So if I outsource, I come up with a $500,000
04:26
potential revenue. So that's how you're using a decision tree. It's
04:30
Do I make it locally or outsource? So running these numbers with what I've what I've been provided for percentage, revenue and costs to give me a profit
04:41
I would
04:42
outsource because that this could be 5000 versus this. Give me 460,000.

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