Qualitative risk analysis vs quantitative risk analysis: What’s the difference?

Navigating risk is akin to peering into a crystal ball — while certainty eludes us, informed decisions can tilt the odds in our favor. Consider the daily commute: Some perils, like rush hour gridlock, loom large. To counteract this, you might depart earlier. Yet, others, like a sudden flat tire, ambush us unexpectedly. While such setbacks may still delay our arrival, keeping a spare tire stashed away ensures a smoother recovery, sparing us the hassle of summoning roadside assistance. Though risks persist, strategic foresight mitigates their impact. Without knowing it, you’re probably conducting your own qualitative risk analysis and quantitative risk analysis for each.

We engage in subconscious risk assessments daily. Yet, for project managers, this task is a cornerstone of their role. Let’s delve deeper into the realm of risk assessment in project management.

What is a risk analysis?

What is a risk?

Risks are problems that could arise as a result of a decision. It’s important to identify them prior to project kick-off so you know what you’re up against. Once you know that, you can analyze the likelihood of said risks occurring and put measures in place to stop them in their tracks. And, if it’s too late, risk analysis can stop the issue from happening again.

What is risk assessment?

Risk assessment is a process that provides project managers with an estimate of how severe a risk is.  This is especially useful for a project manager because it shows them exactly where to focus their attention. This means they don’t end up giving too much time and energy to things that don’t necessarily need it while failing to pay attention to storm clouds gathering on the horizon.

The severity of a risk is defined according to two categories: the effect the risk could have on the project and the likelihood of it happening. Then, there’s an optional third category: precision (we’ll go into what that means a little later on).

There are different types of risk analysis and risk definition, some more detailed than others.

Qualitative risk analysis vs. quantitative risk analysis

There are two types of risk analysis: qualitative and quantitative. When it comes to project management, they both sit in the planning stage, but the qualitative analysis comes after the quantitative if you’re doing both.

Qualitative risk analysis

A qualitative risk analysis is subjective. The goal is to work out risk severity by predicting the likelihood and impact of a risk. You’ll usually perform them on all identified risks within a project, as well as for all types of projects. Risks are usually presented in a risk assessment matrix, which is then used to explain risks to relevant stakeholders. This risk assessment method is the most effective but is typically difficult to fund or budget for, due to their lack of numerical estimates.

Risk magnitude

A qualitative risk analysis uses a rating scale to grade the risks in terms of likelihood and impact.

The project manager will organize the scale according to a predefined ratings system. For example, as you’ll see in the table above, 0.1 to 3.0 is low risk, 4.0-6.9 is medium, and so on. These should come with definitions for added clarity.

There’s no right or wrong way to organize your scale — options range from three-point systems to 10 — but five is the most common, with the stages spanning ‘very low’ and ‘low,’ to ‘moderate,’ ‘high,’ and ‘very high.’

How to perform a qualitative risk analysis

1. Identify risks:
   • Gather your team and brainstorm potential risks.
   • Use historical data, expert judgment, and project documents to identify risks.
2. Assess impact and likelihood:
   • Rate each risk based on its potential impact and likelihood of occurrence.
   • Use a predefined rating scale (e.g., 1-5 or low, medium, high).
3. Prioritize risks:
   • Create a risk matrix to plot risks based on their impact and likelihood.
   • Focus on the high-impact and high-likelihood risks first.
4. Document results:
   • Record the identified risks, their ratings, and the priority level.
   • Share the risk assessment matrix with stakeholders.

Quantitative risk analysis

A quantitative risk analysis is objective. It relies on data to analyze risk to budget, deadline overruns, scope creep, and resource overruns. A quantitative risk analysis deals with numbers and is, therefore, limited by the data available. While a full quantitative risk analysis is always best (more on what that is a little further down), it’s not always possible or practical to roll out the big guns for a small task.

A quantitative risk analysis is evidence-based. It assigns numerical values to risks based on quantifiable data, such as costs, logistics, completion time, staff sick days, and so on. You will usually perform one after a qualitative risk analysis, it’s a way to further assess the highest priority risks.

It’s a more scientific approach, which means any decisions are easier to explain to stakeholders. It’s also useful for managing the triple constraint because the clarity of the numerical ranking makes it easier to schedule and work out costs.

How to perform a quantitative risk analysis

1. Collect data
   • Gather numerical data relevant to the identified risks (e.g., cost estimates, time estimates, statistical data).
2. Analyze risks
   • Use statistical models and simulations (e.g., Monte Carlo simulation) to analyze the impact of risks.
   • Calculate the probability of risk events and their potential impacts in numerical terms.
3. Develop risk response strategies:
   • Based on the quantitative analysis, create detailed risk response plans.
   • Allocate resources and budget for risk mitigation.
4. Monitor and review:
   • Continuously monitor the identified risks and update the analysis with new data.
   • Adjust risk response strategies as necessary.

Three ways to categorize your risks

1. Causes: It’s easier to categorize risks if you look at their common causes. You can deal with a smaller number of easier-to-manage clusters instead of dealing with lots of separate things.
2. Urgency: As part of a qualitative risk analysis, you’ll examine each risk’s threat level. Project managers can then go deeper and combine the risk ranking number with a risk urgency rating to find the ‘risk sensitivity rating.’ This can help managers better prioritize their risks.
3. Precision: If a project has many risks, it can be challenging to decide which one to address first. A risk ranking system based on each risk’s position in a risk matrix can help managers prioritize.

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Data powers all risk assessments, but some data sets are more reliable than others. Precision defines the confidence placed in the estimates. It doesn’t tell project managers anything about the severity of the risk, but it does tell them how much a judgment can be trusted. When it’s a close call, this third category could help nudge the PM towards a better route of action.

Risk analysis examples

Construction of the Hoover Dam

• Qualitative Analysis: Prior to construction, engineers identified risks such as geological challenges and labor disputes.
• Quantitative Analysis: Utilizing cost estimates and historical data, project managers assessed the financial risks and potential delays.
• Outcome: By proactively addressing these risks, the project was completed within budget and ahead of schedule.

Apollo Space Program

• Qualitative Analysis: NASA conducted extensive risk assessments to identify potential technical failures and astronaut safety concerns.
• Quantitative Analysis: Through simulations and data analysis, engineers calculated probabilities of mission success and failure.
• Outcome: Despite facing numerous challenges, the Apollo missions achieved their goal of landing humans on the moon, showcasing the effectiveness of rigorous risk management.

Risk assessment techniques

• SWOT Analysis: Helps identify project strengths, weaknesses, opportunities, and threats, providing a holistic view of potential risks.
• Failure Mode and Effects Analysis (FMEA): Systematically evaluates potential failure modes and their effects on project objectives, enabling proactive risk mitigation.
• Root Cause Analysis: Identifies underlying causes of risks, allowing for targeted interventions to prevent recurrence.

Advanced methods in quantitative risk analysis

• Monte Carlo Simulation: Simulates thousands of scenarios to predict the probability of different outcomes, providing valuable insights for risk assessment and decision-making.
• Decision Tree Analysis: Visualizes decision options and potential outcomes, helping project managers evaluate the impact of risks on project objectives.

Risk analysis tools

Risk assessments are an easy, surprisingly quick way to prepare for problems that could arise at any point during a project. To make the job even easier, invest in tools that help you plan ahead.

With Backlog’s task hierarchy system, you can organize your risks according to priority, share files, and receive notifications in real-time. You can also share work with the wider team and ask for their input and insight.

Project management software makes it easier to keep tabs on everything that’s going on, as well as collaborate and share your findings with the wider business. When it comes to spotting and stopping risks, the more you can do to collaborate and share ideas, the more prepared you’ll be for anything that comes your way.

As you navigate the intricate landscape of risk management, having the right tools at your disposal can make all the difference. That’s where Cacoo steps in, offering a comprehensive suite of risk assessment templates to streamline your risk analysis process.

With Cacoo’s intuitive platform, project managers can access a variety of pre-designed templates tailored specifically for risk assessment. Whether you’re conducting qualitative or quantitative analysis, Cacoo provides the framework you need to identify, evaluate, and mitigate risks effectively.

From SWOT analysis to risk matrix, Cacoo offers a range of templates to suit your risk assessment needs. These templates not only save time but also ensure consistency and thoroughness in your risk management approach.

By leveraging Cacoo’s risk assessment templates, project managers can enhance decision-making, improve project outcomes, and safeguard against potential pitfalls. So why leave risk analysis to chance? Explore Cacoo for free today and empower your team to tackle risks with confidence.

This post was originally published on November 4, 2020, and updated most recently on May 24, 2024.