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Quantitative Risk Analysis

5 minutes 5 Questions

Quantitative Risk Analysis is a way of numerically analyzing the effect of identified risks on overall project objectives using techniques like Monte Carlo simulation and Decision Tree Analysis. It assesses the probable impact on project schedule and cost objectives, providing statistical data like…

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CAPM - Quantitative Risk Analysis Example Questions

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Question 1

You are a project manager of a high-rise building construction project. There are risks related to design error that could potentially increase the cost by $400,000, with a probability of 0.1. Determine the expected monetary value of this risk.

Correct Answer: $40,000

The expected monetary value of a risk in project management is calculated by multiplying the potential cost of the risk by the probability of it happening. In this case, the cost of the risk is $400,000 and the probability is 0.1. Therefore, the expected monetary value of this risk is $400,000 * 0.1 which equals $40,000. Hence, the correct answer is $40,000. Other answers are incorrect because they do not result from the correct multiplication of the given cost by the probability. For example, $400,000 is the cost of the risk but not the expected monetary value; $100,000 and $4,000 do not align with the multiplication of the risk cost and its probability.

Question 2

A project is governed by three major risks. Risk A could potentially delay the project by 10 days (with a 0.2 probability), Risk B could potentially delay by 15 days (with a 0.3 probability), and Risk C could potentially delay by 20 days (with a 0.1 probability). What is the total expected delay for the project due to these risks?

Correct Answer: 8.5 Days

The total expected delay for the project can be calculated as the product of each risk's potential delay time and its corresponding probability. For risk A, it is 10 days times 0.2 (2 days). For risk B, it's 15 days times 0.3 (4.5 days). Lastly, for risk C it is 20 days times 0.1 (2 days). When we add up these expected delays we get a total estimate of 8.5 days. The answers '45 Days', '22.5 Days' and '33 Days' are wrong because they weren't achieved using this method of calculating the expected value or were based on incorrect calculations.

Question 3

A security company is conducting risk analysis on three separate systems. System A has an impact value of $25,000 and a likelihood of 0.4. System B has an impact value of $20,000 and a likelihood of 0.6. System C has an impact value of $30,000 and a likelihood of 0.2. Which system has the highest expected monetary value?

Correct Answer: System B

To find the expected monetary value (EMV), we multiply the impact value by the likelihood for each system: EMV_A = $25,000 * 0.4 = $10,000, EMV_B = $20,000 * 0.6 = $12,000, EMV_C = $30,000 * 0.2 = $6,000. Therefore, System B has the highest EMV.

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