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What’s the Difference Between Qualitative and Quantitative Risk Analysis?

Safran Software Solutions

Safran Software Solutions

Effective   risk analysis   and management are 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 impossible if you don't take the time to identify, analyze, categorize, prioritize, and gauge the impact of external risks before work commences.

Two well-established methodologies dominate risk analysis: qualitative and quantitative. Yet, despite their universality, a surprising number of people within the project management bubble struggle to understand how best to deploy these methodologies.

In this article, we will define both approaches. Then, we explore why quantitative risk analysis, while mechanically more complex, is better suited to the demands of today's megaprojects.

Qualitative Risk Analysis is Subjective 

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 is to determine severity. Results are then recorded in a   risk assessment matrix   (or any other form of an intuitive graphical report) in order to communicate outstanding hazards to stakeholders.

risk-assessment-matrix-example-safran

Quantitative Risk Analysis is Objective

Quantitative risk analysis uses verifiable data to analyze the effects of risk in terms of cost overruns, scope creep, resource consumption, and schedule delays. 

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 entirely dependent upon the quantity and accuracy of your data.

Mechanics of Quantitative Risk Analysis

In his   Journeymap to Project Risk Analysis , David Hulett outlines the mechanics of quantitative risk analysis.

Uncertainty and Identified Risks

Uncertainty and identified risks are two distinct factors that influence the variability of results for schedule and cost. These are the factors we're trying to quantify.

Uncertainty 

Uncertainty is background variability, distinct from variation caused by identifiable risks. It's caused by at least 3 common factors in projects:

  • The inherent variability of the work not caused by identified risks
  • Estimating error or error of prediction
  • Bias in estimation or prediction

Uncertainty is always present at some level of impact, so its probability is 100%. Since its source is unknown, uncertainty can't be mitigated during the time of one project.

The typical expression of uncertainty is in multiplicative terms such as 90%, 105%, and 120%, where the most likely value is expressing a 5% correction for optimistic bias in the durations of the schedule analyzed.

Identified Risks

Identified risks are root causes of variability that can be measured and moderated or mitigated. There are two types of these risks:

  • Project-specific risks
  • Systemic risks

Quantifying an identified risk using Risk Drivers represents the   probability   that the risk will occur on this project and the   impact   the risk has on the duration of the activities it affects if it occurs.

For example: 40% probability means that the risk occurs in 2,000 of 5,000 iterations, chosen at random, during a Monte Carlo simulation. Impact percentage is a multiplicative factor chosen from a probability distribution (e.g., 90%, 100%, 120%). Due to proportionality, the multiplicative factor can be applied to long and short duration activities equally.

Risk driver chart

Which is Better for Risk Management?

The quantitative approach to risk analysis is better for managing the risk of modern projects. It provides a better means of understanding how risk and uncertainty affect project outcomes. But that doesn't mean that qualitative risk analysis is totally useless.

By ranking severity in broader terms, qualitative risk analysis is useful for gauging probability and prioritizing risk in a way that’s easy for non-project controls people to understand. This can help with stakeholder buy-in by offering a small sample of the wider risk landscape.

Speed & Simplicity vs. Accuracy & Complexity

Quantitative risk analysis relies on accurate statistical data to produce actionable insights — the kind that hasn' t been historically available. So instead, project managers used a more subjective, qualitative approach to risk management.

So while it might be quicker, the best way to get the most robust risk analysis is through quantitative means. It allows you to:

  • Quantify outcomes
  • Clear up uncertainty surrounding the results of initial qualitative analysis
  • Set achievable cost and scheduling targets
  • Assess the probability of successfully achieving these goals

High-risk industries in particular — mining, oil and gas, or construction — 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 understa nd the steps needed to mitigate potential issues.

Use High-Quality Risk Analysis Platforms

Safran Risk provides best-in-class quantitative risk analysis, resulting in the best possible insight into the risks and their potential impact on the successful execution of your project or portfolio.

Safran Risk   gives you all the data yo u need to perform effective analysis from a single p latform. Safran Risk Manager is a powerful qualitative risk analysis platform that has earned its place in the project control community.

Safran Risk Manager   takes a holistic approach to risk management and  integrates seamlessly. 

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

Georgina Guthrie

Georgina Guthrie

November 04, 2020

Working out a risk is a bit like trying to predict the future — you’ll never be spot on, but with careful thought, you can come pretty close.

Take driving to work. Some risks, like getting stuck in traffic, are high. To mitigate that risk, you might set out early. Other hiccups, like getting a flat tire, are less predictable. If it happens, you’ll probably still be late for work, but being prepared by keeping a spare tire in the trunk of your car will speed the process up and save you from having to call out a mechanic. The risk still affects your journey, but because you planned ahead, the snafu wasn’t as bad as it could have been.

We do unconsciously risk analysis every day. But for project managers, risk analysis is an important part of their job . Let’s take a closer look at risk assessment in project management.

What are risks, and what is risk assessment?

Risks are problems that could arise as the 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.

Risk assessment is a process that provides project managers with an estimate of how severe a risk is .

For a project manager, this is especially useful 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 as well as different types of risk definition. Some of these have more detail 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.

  • 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.
  • A quantitative risk analysis is objective.  It relies on data, which is used 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.

Qualitative Risk Analysis explained

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

risk assessment qualitative vs quantitative

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.’

Quantitative Risk Analysis

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 triple constraint : The clarity of the numerical ranking makes it easier to schedule and work out costs.

Quantitative risk analysis checklist:

  • A prioritized list of risks (which you’ll get by doing a qualitative risk analysis)
  • Reliable data
  • A developed project model

Three ways to categorize your risks

  • Group them together according to their 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.
  • Look at their urgency As part of a qualitative risk analysis, you’ll look at 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 prioritize their risks better.
  • Add precision If a project has lots of risks, it can be a challenge 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.

risk assessment qualitative vs quantitative

Image Source

Data powers all risk assessments, but some data sets are more reliable than others. Precision defines the confidence placed on 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 the better route of action.

Final thoughts

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.

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What Is Risk Assessment?

Understanding risk assessment, risk assessments for investments, risk assessments for lending, risk assessments for business.

  • Fundamental Analysis

Risk Assessment Definition, Methods, Qualitative Vs. Quantitative

risk assessment qualitative vs quantitative

Risk assessment is a general term used across many industries to determine the likelihood of loss on an asset, loan, or investment. Assessing risk is essential for determining how worthwhile a specific investment is and the best process(es) to mitigate risk. It presents the upside reward compared to the risk profile . Risk assessment is important in order to determine the rate of return an investor would need to earn to deem an investment worth the potential risk.

Key Takeaways

  • Risk assessment is the process of analyzing potential events that may result in the loss of an asset, loan, or investment.
  • Companies, governments, and investors conduct risk assessments before embarking on a new project, business, or investment.
  • Quantitative risk analysis uses mathematical models and simulations to assign numerical values to risk.
  • Qualitative risk analysis relies on a person's subjective judgment to build a theoretical model of risk for a given scenario.
  • While a stock's past volatility does not guarantee future returns, in general, an investment with high volatility indicates a riskier investment.

Risk assessment enables corporations, governments, and investors to assess the probability that an adverse event might negatively impact a business, economy, project, or investment. Risk analysis provides different approaches investors can use to assess the risk of a potential investment opportunity. Two types of risk analysis an investor can apply when evaluating an investment are quantitative analysis and qualitative analysis.

Quantitative Analysis

A quantitative analysis of risk focuses on building risk models and simulations that enable the user to assign numerical values to risk. An example of quantitative risk analysis would be a Monte Carlo simulation . This method—which can be used in a variety of fields such as finance, engineering, and science—runs a number of variables through a mathematical model to discover the different possible outcomes.

Qualitative Analysis

A qualitative analysis of risk is an analytical method that does not rely on numerical or mathematical analysis. Instead, it uses a person's subjective judgment and experience to build a theoretical model of risk for a given scenario. A qualitative analysis of a company might include an assessment of the company's management, the relationship it has with its vendors, and the public's perception of the company.

Investors frequently use qualitative and quantitative analysis in conjunction with one another to provide a clearer picture of a company's potential as an investment.

Other Risk Assessment Methods

Another example of a formal risk assessment technique includes conditional value at risk (CVaR) , which portfolio managers use to reduce the likelihood of incurring large losses. Mortgage lenders use loan-to-value ratios to evaluate the risk of lending funds. Lenders also use credit analysis to determine the creditworthiness of the borrower.

Both institutional and individual investments have expected amounts of risk. This is especially true of non-guaranteed investments, such as stocks, bonds, mutual funds , and exchange-traded funds (ETFs) . 

Standard deviation is a measure applied to the annual rate of return of an investment to measure the investment's volatility . In most cases, an investment with high volatility indicates a riskier investment. When deciding between several stocks, investors will often compare the standard deviation of each stock before making an investment decision.

However, it's important to note that a stock's past volatility (or lack thereof) does not predict future returns. Investments that previously experienced low volatility can experience sharp fluctuations, particularly during rapidly changing market conditions.

Lenders for personal loans, lines of credit , and mortgages also conduct risk assessments, known as credit checks. For example, it is common that lenders will not approve borrowers who have credit scores below 600 because lower scores are indicative of poor credit practices. A lender's credit analysis of a borrower may consider other factors, such as available assets, collateral , income, or cash on hand.

Business risks are vast and vary across industries. Such risks include new competitors entering the market; employee theft; data breaches; product recalls; operational, strategic and financial risks; and natural disaster risks.

Every business should have a risk management process in place to assess its current risk levels and enforce procedures to mitigate the worst possible risks. An effective risk management strategy seeks to find a balance between protecting the company from potential risks without hindering growth. Investors prefer to invest in companies that have a history of good risk management.

risk assessment qualitative vs quantitative

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What’s the Difference? Qualitative vs. Quantitative Risk Analysis

October 21, 2022   Rachel Slabotsky

Qualitative vs Quantitative Cyber Risk Analysis Whats the Difference

Let's explore the differences between quantitative and qualitative risk analysis.

Qualitative Risk Analysis  

Analysts use ordinal rating scales (1 - 5) or assign relative ratings (high, medium, low or red, yellow, green) to plot various risks on a heat map with Loss Event Frequency (or Likelihood) on one axis and Loss Severity (or Magnitude or Impact) on the other.

But how do analysts decide where to place the risks relative to each other? They decide based on their experience in risk management or — as Jack Jones writes in his book Measuring and Managing Information Risk: A FAIR Approach — their "mental models." In other words, these decisions are made based solely on the opinions of the people conducting the assessment.

Purely qualitative analyses are inherently subjective. This makes prioritizing risks a challenge. How do you determine, for instance, which red risk is the "most red?" Second, there is also no systemic way to account for the accumulation of risk (e.g., does yellow times yellow equal a brighter yellow?). Finally, there is a tendency to gravitate toward the worst-case scenario for Loss Magnitude since analysts are forced to choose a specific value (e.g., red, yellow, green) versus assigning a value along a continuum.

As a result, ratings are subject to bias, poorly defined models, and undefined assumptions.

WHAT SHOULD A RISK MODEL DO?

FAIR Model - Short Version - Caption

“It must be scenario-based so you are measuring the frequency and magnitude of loss event scenarios. If a model isn’t scenario-based, I don’t see how the results could be legitimate.

“It also should faithfully account for uncertainty using ranges or distributions as inputs and outputs, not as discrete values.

“The rationale for the inputs -- why you chose your data range and so forth -- should be open for examination. If analysis was done and there is no rationale, then you should be leery of the output."

--Jack Jones, creator of the FAIR model

Read more: FAIR vs Proprietary Models

RiskLens Platform - Rapid Risk Assessment - Top Risks

Quantitative Risk Analysis

Instead of mental models that vary by analyst, the quantitative approach runs on a standard model that any analyst can use to produce consistent results. At RiskLens, we use the FAIR model — that's Factor Analysis of Information Risk — to perform quantitative assessments using the best available models and techniques.

FAIR takes the guesswork out of the concepts of Loss Event Frequency and Loss Magnitude, the two main components of Risk that are also leveraged in qualitative analysis. The difference is that ranges or distributions are used to capture high and low ends of possible outcomes rather than discrete values.

Various iterations of these inputs are then run through a Monte Carlo engine. The result is not a simple two-axis heat map, but a bell curve showing a range of probable outcomes.

The model breaks down these two factors into subcomponents that can be estimated based on information collected from subject-matter experts in the company and industry-standard data, then builds them back up into accurate, overall estimates of Frequency and Magnitude — with Magnitude expressed in terms of dollars and cents.

By using a probability distribution to identify the impact of potential risks, the FAIR model offers reliable data that can be used to inform business decisions with something more tangible and accurate than color categories (for instance, risks most likely to exceed $1 million, etc., as shown above in a RiskLens output). 

A NOTE ON INDUSTRY-STANDARD DATA FOR CYBER RISK ANALYSIS

Good risk analysis requires good data that’s both reliable and relevant to the organization and, specifically for FAIR™ quantitative analysis, covers frequency and financial impact of cyber loss events. Realistically, security and risk teams often don’t have the time or staff to hunt down and interview the subject-matter experts in the organization. 

The RiskLens data science team has cracked that problem by applying extensive field knowledge (gained from bringing FAIR risk quantification to a wide client base) with advanced data analytics to mine actionable insights from a huge trove of data collected from industry sources such as the Verizon DBIR and Advisen.

The RiskLens SaaS enterprise platform comes pre-populated with industry-specific data and scenarios that can be augmented with the enterprise’s internal data when available. (Alternative: Take advantage of RiskLens data capabilities as a managed service client .)

Benchmark - Insider Misuse

Using quantitative risk analysis, analysts can present decision-makers with a way to visualize risk that's more accurate than plotting points on a heat map, uses financial terms that anyone in the business can understand, and is based on logical analysis that can be explained and defended.

Overall, it offers a more accessible and accurate way to illustrate the impact risk can have on your business, allowing for better team coordination that can be used to better your risk management strategies.

Of course, if you'd still like to present your quantitative analysis on a heat map, there's nothing stopping you

HOW TO MAKE A SMARTER HEAT MAP

Run quantitative analysis on your top risk scenarios.

Rank them by loss exposure.

Group your ranked risks by ranges.

Assign colors to those ranges.

Result: A heat map based on solid, quantitative risk analysis.

Heat Map - Mapping Loss Magnitude Ranges

The Bottom Line

To recap, qualitative analysis and quantitative analysis primarily differ in their foundations — qualitative risk is grounded in the subjective experience of the analyst, and quantitative risk is grounded in the probable financial loss from cyber events. Both have their place, but if you're trying to determine your organization's cyber risk management strategy, we recommend you perform a quantitative risk assessment to put a dollar value on the probable risk you face.

Although it might be beneficial to quickly group individual risks from a qualitative perspective, it's better to use the standard model for cyber risk quantification, FAIR, to place a dollar value on the full range of cyber dangers your business faces so you can move forward with confidence.

Want to see the difference for yourself? RiskLens can introduce your business to quantitative risk assessment with the FAIR model. Contact us for a demo

Stay up-to-date with the latest insights and blog posts from RiskLens.

Recent blog posts, quantitative risk reporting stratification: know your audience, build or buy an application to run fair cyber risk quantification, how to use cyber risk quantification for business decision support – a short guide.

Project Risk Manager

Qualitative vs. Quantitative Risk Analysis: What’s the difference?

Qualitative and Quantitative Risk Analysis.

This is a generally well-known topic, but I do still get asked the question fairly regularly so, in this post, I’m going to provide a brief outline on the difference between Qualitative and Quantitative Risk Analysis.

In a nutshell, Quantitative Risk Analysis uses available relevant and verifiable data to produce a numerical value which is then used to predict the probability (and hence, acceptability) of a risk event outcome. Qualitative Risk Analysis , on the other hand, applies a subjective assessment of risk occurrence likelihood (probability) against the potential severity of the risk outcomes (impact) to determine the overall severity of a risk.

Risk management (in it’s very loosest form) can be traced back to the beginning of human origins, but it was only towards the end of the 19 th century, when high-rise buildings, complex railway infrastructures, large dams and canals started being built, that formalised project risk management techniques became more widespread in helping determine the outcome of a project. At that stage, however, risk management techniques were all still largely qualitative. Meaning the management of risk focussed only on identifying threats (or opportunities), subjectively establishing the likelihood of risk event occurrence and identifying the potential impacts of the risk. This 3-step process remains the foundation of qualitative risk analysis today, although we now have formalised methods and guide-lines to help us establish the severity of these risks, which would typically be done using a Probability/Impact ranking matrix.

The first known quantitative risk analysis method was developed by Henry Gantt in 1917 in the form of the Gantt Chart which, at the time, was used exclusively for schedule risk analysis. Gantt charts still form the basis of most schedule applications used today but, in terms of Quantitative Risk Analysis, the available methods have evolved and diversified greatly, providing us with a range of options specific to different risk types and their impacts. Quantitative Risk Analysis methods include, amongst others, Monte-Carlo Analysis, Layers of Protection Analysis (LOPA), Failure Mode and Effect Analysis (FMEA), Markov Analysis and Bayesian Analysis. Most of these methods will be meaningless to all but trained Risk Engineers and Managers, so let me try and describe Quantitative Risk Analysis by way of example.

In most operating facilities where there are inherent life threatening risks, such as oil & gas handling facilities, chemical processing plants, timber mills, mines etc. it has become mandatory practice to carry out a technical safety Quantitative Risk Analysis (QRA) to evaluate the risk to personnel working on the facility. The primary objectives of this type of QRA are to establish the Individual Risk per Annum (IRPA) and Potential for Loss of Life (PLL), and to then recommend measures to ensure the risks are kept As Low as Reasonably Practical (ALARP).

IRPA is calculated by multiplying the Location Specific Individual Risk (LSIR) by the proportion of time an individual spends in that location, and PLL is calculated by multiplying the IRPA by the number of personnel working within the location. LSIR is calculated as the sum of the frequency of each anticipated Major Accident Event (MAE) multiplied by the probability of fatality due to an MAE at that location. These calculations may be defined mathematically as follows:

LSIR = ∑ (F × P)

IRPA = LSIR x T

PLL = IRPA x N

The results of these calculations are then compared against a set of Risk Tolerability Criteria and, if they fall outside the acceptable range, mitigation measures need to be taken to reduce the results to fall within the acceptability criteria (or ALARP).

In our next post, we will consider another Quantitative Risk Analysis method, that being Monte-Carlo Simulation, and examine how this method is used to help predict the probability of outcome of certain events.

For more information about our project risk management services and software, or if you just want to express your own views on the subject, please feel free to get in touch via our “Contact Us” page.

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risk assessment qualitative vs quantitative

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Difference Between Qualitative and Quantitative Risk Analysis

qualitative vs. quantitative risk analysis - Invensis Learning

Business is an environment of chance and reward. Projects and opportunities arise, and the decisions you make could result in a profitable experience or loss.  70%  of all projects undertaken are over the pre-defined budget, with 85% of them being behind schedule. It is of prime importance to make educated decisions that maximize benefits while minimizing the possibility of negative impact or risk. Risk analysis is an essential practice that organizations should implement.

92% of CEOs unanimously agree  that understanding the role that risk plays in project selection or within the organization is detrimental to a business’s success in the long term. The concept of risk analysis ensures a company is adequately prepared to take on a project. This is handled by certified executives explicitly employed for the same. While it is nearly impossible to predict the future, it is critical to understand the components that contribute to positive decision-making skills.

What Is Risk Analysis?

Risk analysis works as a key practice within management to minimize, if not eradicate, factors that could negatively impact an organization. Could being the key term, the element of surprise is not welcome in business environments. Risk analysis or management works to foresee uncertainties and ensure these are addressed before they arise or that methods to solve the same are in place. 

Using Risk Analysis methods are helpful when an organization is trying to:

  • Plan multiple projects down the pipeline to identify and mitigate as many prospective problems as possible
  • Decide whether or not to move along with the project to completion 
  • Improve the management and potential safety hazards within a professional environment
  • Create a “Plan B” in unforeseen unavoidable circumstances, including potential equipment malfunction, theft, staff unavailability, or natural calamities
  • Implement change within the organization, such as adjusting processes to compete against new market entrants or legal policy changes

To conduct a risk analysis , companies have to identify possible threats to the organization and stakeholders. These risks include human, operational, reputational, procedural, and business processes wise, financial, technical, natural, political, and even structural threats. Basic tools to assess these situations in-depth include conducting a SWOT analysis to understand perception, Failure Mode, and Effects analysis to discover existing threats and Scenario Analysis, which uncover future threats. 

Running through lists of these threats helps companies understand relevance and magnitude. It is just as critical to understanding how the organization works from a granular level. When all processes, chains of communication, and internal structures are identified, it becomes simpler to identify where possible breakdowns could occur. Considering the perspectives of different stakeholders within the organization can also help fully understand the “risks.” Team members conducting projects would be able to offer more detailed insight on possible faults that could translate downwards than a team leader would. 

Once risks are identified, they become quantifiable through tools such as the Risk Impact/Probability Chart or formulas, including “Risk Value = Probability of Event x Cost of Event.” This stage happens slowly as it involves the most technical aspects of the risk deduction process, allowing for accuracy within decision making. Closing this assessment stage is a problem-solving mechanism. This includes avoiding the risk, sharing the risk, accepting the risk, and controlling the risk. Each decision offers beneficial qualities to the business while helping them understand where problems are developing and employing the path of least resistance.  

CRISC Certification Training - Invensis Learning

Qualitative vs. Quantitative Risk Analysis

Qualitative and Quantitative risk analysis methods function to assess the same criteria at different capacities. Fundamentally the difference lies between subjective and objective understandings. 

Qualitative risk analysis functions on subjective understanding. The concept focuses on understanding the probability of an event happening over the project life cycle and the magnitude of its impact. The main objective of qualitative analysis is to measure the intensity of what could occur. With that information, graphical representations are known as a “Risk Assessment Matrix” can be put together to visually depict possible deterrents to all stakeholders for better decision-making skills. The qualitative assessment focuses on organizing potential hazards into categories and understanding whether these events are based on the source or based on effect. 

Quantitative risk analysis works on objective understanding. Utilizing data that can be verified and analyzed, the risks involved in exceeding budgets, consumption of resources, delays in schedules, and scope creep can be almost accurately identified. While the end result is the same as the deduction on qualitative analysis, this method is more science-centric and helps place assessment in a chain of logic. 

Qualitative assessment primarily occurs at the risk level. It is a case-based or subjective understanding of the likelihood and magnitude of events. This kind of evaluation usually is quicker and easier to perform and requires no special software or tools. On the other hand, quantitative assessments occur on a project level. It offers the most likely estimates of measurable outcomes, including prospective timelines or costing. While this method is time-consuming and would require a more specialized set of tools, it offers a solid framework for a plan of action.

While both qualitative and quantitative risk analysis schemes work well individually, they work best when employed together. This offers companies a 360 degree perspective on tackling risks both in terms of numbers and perception. Utilizing risk analysis methods help companies engage in meaningful and sustainable business activities. In business environments, minimal risk environments are more important than unstable rewards. 

I hope you have enjoyed reading this post on “Qualitative vs. Quantitative risk analysis”. If you want to upskill in the field of IT Risk Management, do check out the  CRISC Certification training  offered by Invensis Learning. This program is in line with the ISACA’s CRISC (Certified In & Information Systems Control) certification exam.

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Qualitative and Quantitative Risk Analysis: A Comprehensive Comparison Guide

  • Ossian Muscad
  • August 28, 2022
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Navigate risk confidently with our in-depth guide. Learn the nuances of Qualitative vs Quantitative Risk Analysis for robust decision-making.

Last Updated on January 28, 2024 by Ossian Muscad

Risk is an inherent part of any project; you must take the time to identify and analyze potential risks before work begins. Two well-established methodologies for risk analysis are qualitative and quantitative. But what are they, how do they differ, and how do you use them? In this article, we’ll define quantitative and qualitative risk analysis and give examples of their use. Irrespective of the size or scale of your project, using one or both of these methods is essential for delivering on time and within budget!

What is Qualitative Risk Analysis?

Qualitative risk analysis is a process that allows project managers to analyze and prioritize risks based on their likelihood and potential impact. This method does not require numerical values but instead involves gauging the severity and probability of risks through expert judgment, discussions, and risk assessment tools like the Risk Impact/Probability Chart.

Utilizing this approach enables project teams to categorize risks into groups, such as ‘high,’ ‘medium,’ or ‘low’ priority. This can help focus attention and resources on the most critical potential issues that could affect project outcomes. Examples of qualitative risk analysis include brainstorming sessions, the Delphi technique, and SWOT analysis. Using one or a combination of these methods can help identify, analyze, and prioritize potential risks.

What is Quantitative Risk Analysis?

Quantitative risk analysis, in contrast to the qualitative approach, involves the numerical quantification of risks. This method uses data and statistical techniques to understand risks in terms of numerical probability and consequence, allowing for a more precise measurement of the likelihood of risk occurrence and its impact on project objectives. Common tools and techniques for quantitative risk analysis include, but are not limited to, Monte Carlo simulations, decision tree analysis, and sensitivity analysis.

When conducting a quantitative risk analysis, project managers often utilize historical data, financial models, and mathematical forecasting to assess risks. This can be particularly beneficial in allocating a tangible risk budget and making informed decisions about risk response strategies. Examples of quantitative risk analysis may involve detailed cost estimations, probabilistic analysis of the project schedule, and earned value analysis to visually articulate the range of possible outcomes and to assist in making better decisions about whether those risks are acceptable or need to be mitigated.

Qualitative Vs. Quantitative Risk Analysis: How Do They Differ?

The nature of data used in each methodology is at the core of the qualitative vs quantitative risk analysis debate. Qualitative risk analysis tends to be more subjective and is based on the expertise and intuition of the project team and stakeholders. It’s more about understanding the nature of risk and determining its potential effect on project objectives without assigning specific numerical values. Consequently, it’s often quicker and less resource-intensive, appropriate for early project phases or smaller projects with limited data.

Conversely, quantitative risk analysis is objective and numeric. It requires a significant amount of high-quality data to produce a precise numeric valuation of risks, typically in terms of cost and time. It is data-driven, relying heavily on statistical models and is often more time-consuming and expensive to conduct. Thus, it is usually reserved for larger projects where the cost of failure is substantial. Quantitative analysis enables project managers to forecast potential scenarios numerically, leading to more precise risk mitigation strategies.

Examples of Qualitative Risks/Problems

  • Project Team Conflicts : Disagreements among team members that may affect project morale and timelines.
  • Client Change Requests : Frequent and unpredictable changes requested by a client that could alter project scope.
  • Regulatory Changes : Shifts in legal or regulatory requirements could impact project delivery standards.
  • Market Conditions : Volatility in market conditions that may influence project demand and viability.
  • Technological Change : Rapid advancements in technology may render current project processes obsolete.

Examples of Quantitative Risks/Problems

  • Cost Overruns : Measurable increases in project costs that could impact profitability.
  • Delay Penalties : Specific financial penalties associated with project delays, often tied to contractual milestones.
  • Interest Rate Fluctuations : Changes in interest rates that could affect project financing costs.
  • Resource Depletion : Quantifiable shortages in project resources that might lead to increased costs or delays.
  • Exchange Rate Risks : Predictable losses or gains due to currency exchange fluctuations affecting international project components.

Qualitative Vs. Quantitative Risk Analysis: How to Perform Both

Performing both qualitative and quantitative risk analysis presents a comprehensive overview of potential project uncertainties. While qualitative risk analysis is a launching pad for recognizing risks, their prioritization, and initial response planning, quantitative risk analysis delves into a deeper statistical understanding of these risks, solidifying the foundation for robust risk management strategies. Together, they form an intertwined process where qualitative assessment informs the basis for the subsequent quantitative evaluation:

Step-by-step Qualitative Risk Analysis Process

Qualitative risk analysis is a fundamental step in identifying and addressing uncertainties in project management. It enables teams to understand risks qualitatively without needing in-depth statistical data. Here’s a quick overview of how project teams can systematically carry out this analysis:

  • Identify Risks : Begin by brainstorming potential risks with team members and stakeholders using tools like checklists, interviews, and SWOT analysis to compile a comprehensive list. This collaborative approach ensures that diverse perspectives are considered for a more thorough risk assessment.
  • Classify Risks : Review the identified risks and categorize them based on their impact and likelihood using classifications such as ‘high,’ ‘medium,’ or ‘low.’ This helps prioritize which risks require immediate attention, enabling proactive risk management.
  • Control Risks : Develop mitigation strategies for high-priority risks, assign risk owners, and formulate responses to alleviate the impact on the project. Clear communication and accountability are crucial for effective risk control and management.
  • Monitor Business Risks : Continuously track and reassess identified risks, utilizing tools such as risk registers and periodic reviews to adapt to any changes in project status or external environment. Regular monitoring and adaptation are essential for staying ahead of potential risks and ensuring project success.

Step-by-step Quantitative Risk Analysis Process

Quantitative risk analysis aims to quantify the potential impact of identified risks on project outcomes using statistical data. This process is crucial for larger projects where precise risk measurement is required for decision-making. Here’s a brief procedural breakdown:

  • Identify Purpose, Scope, and Method : Determine the objectives of the analysis, establish what parts of the project will be examined, and choose the appropriate quantitative method or model to apply. Consider potential alternative methods for a comprehensive assessment.
  • Prepare Data, Tools, and Personnel Needed : Collect relevant data, select suitable statistical tools, and ensure that team members with the required expertise are available for the analysis process. Collaborate with domain experts to validate data sources and tool selection.
  • Implement Chosen Method to Data Gathered : Execute the selected quantitative method, such as Monte Carlo simulation or sensitivity analysis, to the collected data to ascertain the numerical probability and impact of risks. Validate the results through cross-validation or peer review.
  • Document and Store All Results : Record all findings, decisions, and steps taken during the quantitative risk analysis and maintain this documentation for future reference and continuous risk management. Establish a secure and accessible repository for knowledge sharing and audit trails.

Frequently Asked Questions (FAQs)

Q1: what is the primary focus of qualitative risk analysis.

Qualitative risk analysis involves using non-numeric methods to evaluate and rank risks according to their impact and likelihood. It offers a subjective assessment based on the assessor’s perspective and the business’s priorities. Qualitative risk analysis usually does not include mathematical calculations or quantification.

Q2: What are the quantitative risk analysis methods?

Quantitative risk analysis employs various methods, such as Failure Mode and Effects Analysis (FMEA), Business Impact Analysis (BIA), and Expected Monetary Value (EMV). The choice of method depends on the analysis needs and the organization’s goals. For instance, BIA primarily focuses on business impacts and is best suited for risk analysis in service-based businesses. On the other hand, EMV estimates the potential financial impact of risks and is commonly used in finance-oriented projects.

Q3: When to conduct qualitative and quantitative risk analysis?

The decision on when to perform qualitative vs quantitative risk analysis often depends on the project phase, available resources, and the complexity of the project. Qualitative risk analysis is typically performed during the early stages of project planning. This approach is suited when the aim is to quickly sort and prioritize risks based on their perceived severity and impact and when precise data is unavailable. It is particularly useful for initial risk identification, prioritization, and developing action plans for immediate threats.

On the other hand, quantitative risk analysis is usually conducted when there is enough reliable data to measure the risk numerically. It is often reserved for complex projects with significant investments, where stakeholders require a detailed risk assessment with probabilistic outcomes to make informed financial and strategic decisions. This detailed analysis is also well-suited for projects later in the planning process or underway, particularly after qualitative analysis has highlighted which risks warrant a more thorough, numbers-based investigation.

Q4: Is one type of risk analysis better than the other?

Both qualitative and quantitative risk analyses serve essential purposes in managing project risks. Qualitative analysis provides a quick overview of potential risks, allowing immediate action on high-priority items. Quantitative analysis, on the other hand, offers a more detailed and precise understanding of the impact of identified risks.

The choice between qualitative vs quantitative risk analysis depends on the project’s needs and objectives. Some risks may only require a qualitative assessment, while others may demand a more in-depth quantitative analysis. As such, it is crucial to consider both approaches and use them together for comprehensive risk management.

Q5: Can You Perform Quantitative and Qualitative Risk Analysis Simultaneously?

Yes, in some cases, both analyses are performed concurrently; the qualitative analysis may trigger the need for a quantitative follow-up on specific high-impact risks. It’s also common to revisit these analyses at different stages of the project lifecycle to adjust strategies with the most current information. The goal is always to ensure the most effective risk management process is commensurate with the project’s needs and constraints.

Q6: Which type of risk analysis should be performed first?

Generally, a qualitative risk analysis is conducted first, providing an initial overview of project risks that can inform the decision to perform quantitative analysis on specific high-priority items. However, if well-defined and measurable risks are identified early in the planning process, quantitative analysis may be performed concurrently or even before qualitative analysis.

Perform Qualitative and Quantitative Risk Analysis with DATAMYTE

DATAMYTE is a quality management platform with low-code capabilities. Our Digital Clipboard , in particular, is a low-code workflow automation software that features a workflow, checklist, and smart form builder. This tool lets you customize forms, checklists, and workflows to meet your organization’s unique needs. You can use our software to conduct qualitative and quantitative risk analysis by building customized forms and workflows tailored to your project’s requirements.

DATAMYTE also lets you conduct layered process audits, a high-frequency evaluation of critical process steps, focusing on areas with the highest failure risk or non-compliance. Conducting LPA with DATAMYTE lets you effectively identify and correct potential defects before they become major quality issues.

With DATAMYTE , you have an all-in-one solution for comprehensive risk management. You can perform qualitative and quantitative risk analysis and track risks over time to ensure continuous improvement in your project’s quality and success. Book a demo now to learn more.

Understanding the nuances of qualitative vs quantitative risk analysis is fundamental for effective risk management in any project. Examples of qualitative risk analysis illustrate how it’s an approachable starting point for identifying and prioritizing risks when numerical data might be lacking or when decisions need to be made quickly. On the other hand, quantitative risk analysis provides a data-driven perspective, affording a detailed assessment of risk in financial terms, which is crucial for stakeholders requiring concrete projections on which to base their decisions.

Effective risk management hinges on knowing when to use qualitative risk analysis vs quantitative risk analysis, recognizing that each has its strengths and suits different phases or aspects of a project. In some instances, applying both analyses in tandem may be most effective, using the broad insight of qualitative assessment to guide a focused quantitative inquiry into specific high-priority risks.

Ultimately, both types of risk analysis contribute to a more robust understanding of potential project obstacles, allowing businesses to mitigate risk proactively with informed strategy and planning. Balancing qualitative and quantitative methods equips project managers with the insights to navigate uncertainties and steer toward project success.

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Qualitative And Quantitative Risk Analysis | Key Differences

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Differences Between Qualitative and Quantitative Risk Analysis

Qualitative and quantitative risk analysis techniques, the basic backbone that allows every project to be delivered on time per customer expectation. Yes, you read it correctly; identifying any threat in advance will provide room for making necessary corrections in the project. This in turn will reduce the negative impact and enhances the positivity driving towards achieving the goal called the desired outcome. 

Project management is an art and every individual in the project should understand things better for saving time and money. PMP certification course is designed to explain every concept precisely and carve out each project manager successfully. 

Why risk analysis – When we design any project we must be aware of the risks proactively to address them and avoid any last-minute surprises. Especially in complex projects analyzing possible risk in advance is a must. The very word qualitative and quantitative risk looks obvious that the former deals with the risk quality and the latter with the numbers. However, there has always been confusion among people when it comes to these two analyzing techniques. Only when you understand their key differences you can apply them at the right time for efficient results.

qualitative and quantitative analysis

Qualitative Vs Quantitative risk analysis

Here we have tabulated the difference between qualitative and quantitative risk analysis in detail in table format for a glance and better understanding. Followed by we will also explain other details to give you a clear picture of these techniques. 

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Qualitative and quantitative risk analysis 

1. Steps involved in Risk identification 

2. Recording them in a matrix 

3. Ranking them based on the impact it has on the project outcome 

4. Mark the risk which requires further analysis and identify the action for them

5. Probability distributions are used to describe the risk probability along with the impact. 

6. Make use of project models like a cost estimate, mathematical and simulation tools for calculating both the probability and its impact  

Come join PMP certification training online to have practical experience by choosing a project and analyzing the risk. 

Final takeaway 

From the above table we now clearly understand the difference between qualitative and quantitative risk analysis. We are sure that no longer you will feel confused between them. Yes, you are right, qualitative risk analysis is a must to identify, record, and rank risks. Every project will have numerous risks and it is not possible to use a calculation to minimize that which is time-consuming. 

Therefore the qualitative process will assign resources to handpick risks that will cause a major negative impact on the project outcome. Later the most harmful risks will be worked upon to rectify them. This is exactly done in the quantitative method. 

If you were thinking that both independent, then your project results might never reach the satisfaction of the customer. Also, if you have thought that quantitative is difficult because it involves math, again you are wrong because one can be trained to use tools and learn math. But understanding the risk requires real skills. 

We suggest you allocate the right resources to identify risk in the qualitative risk analysis technique and train even amateurs to deal with the qualitative part. 

Join us in our live online pmp training to fine-tune the project management skills in you and become a successful project manager. 

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qualitative vs quantitative risk assessment

Qualitative Vs Quantitative Risk Assessment (Comparison)

Risk assessment helps to identify and evaluate potential risks that may impact the success or outcomes of a project. By assessing these risks, organizations can make informed decisions and take appropriate actions to mitigate or manage those risks effectively.

Qualitative and quantitative risk assessments are two commonly used methodologies in the field of risk management. While both approaches aim to assess and analyze risks, they differ in terms of methodology, data collection, and analysis techniques. Let’s have a detailed understanding of these methods here in this article.

Table of Contents

Qualitative Vs Quantitative Risk Assessment

Qualitative risk assessment is a subjective approach that focuses on the likelihood and impact of identified risks. This method involves gathering information through expert opinions, historical data, brainstorming sessions, and risk matrices.

The identified risks are then evaluated based on predefined criteria such as low, medium, or high likelihood and impact. Qualitative risk assessment provides a qualitative understanding of risks, enabling organizations to prioritize and manage risks based on their potential consequences.

In contrast, quantitative risk assessment is a more objective and data-driven approach. It involves the use of statistical analysis, probabilistic models, historical data, simulations, and other mathematical techniques to quantify risks accurately. This method provides numerical values to represent the likelihood and impact of risks, allowing organizations to make more informed decisions based on quantitative data.

Qualitative Risk Analysis in Oil & Gas Industries

Qualitative risk analysis is a subjective approach to identifying, analyzing, and evaluating risks in the oil and gas industries. It is used when precise quantitative data is either unavailable or difficult to obtain. This approach relies on expert judgment, experience, and knowledge to evaluate risks and prioritize their significance.

When is it used?

Qualitative analysis is typically used in the oil and gas industries when quantitative data is difficult or expensive to obtain. It is also beneficial in situations where a quick assessment of risk is necessary, or when dealing with subjective risks that cannot be readily quantified. Qualitative risk analysis can be used as a stand-alone approach or as a supplement to quantitative risk analysis

Benefits of Qualitative Risk Analysis

Early Risk Identification: Allows organizations to identify potential risks early before they have a significant impact on the project or operations.

Expert input: Qualitative assessment relies heavily on expert opinions and judgment, enabling organizations to leverage their experience and knowledge to identify and assess risks.

Improved Risk Communication: Provides a common language and framework for discussing and communicating risks to diverse stakeholders, improving collaboration, and decision-making.

Improved risk prioritization: Enables organizations to prioritize risks based on their significance, establishing a clear hierarchy of risk management activities.

Quick and easy : Simple approach, requiring minimal data and resources to implement.

Qualitative Risk Assessment Methods in Oil & Gas Projects

qualitative Risk Assessment Methods

  • HAZID (Hazard Identification): This method involves identifying potential hazards associated with a specific process or project and prioritizing them based on risk level. It is usually conducted in the initial project planning phase.
  • HAZOP (Hazard and Operability Study) : HAZOP is a structured and systematic method for identifying potential hazards and operability issues in process design. It involves brainstorming sessions led by a facilitator, and recommendations are made to improve safety and operability in the process.
  • FTA (Fault Tree Analysis): FTA is a graphical method used to analyze and understand the relationship between an undesired event (referred to as the top event) and the underlying causes of that event.
  • Risk Matrix : This method involves assigning probability and severity scores to different hazards or scenarios, and plotting them on a matrix to prioritize the most critical risks. Once the risks are plotted, risk mitigation strategies can be developed.
  • Bow Tie analysis : Bow Tie analysis is a graphical method used to visualize potential hazards and the measures put in place to control them. It is used to identify the critical control measures that are put in place to prevent a hazardous event from occurring and the potential consequences if the control measures fail.

Also Read: HAZID Vs. HAZOP

Quantitative Risk Analysis in Oil & Gas Industries

Oil and gas or petrochemical industries are known for their complex and high-risk projects. These industries face a wide range of risks, including operational, financial, safety, environmental, and geopolitical risks. These sectors benefit greatly from quantitative risk assessment, which allows for more accurate risk assessment and management.

Quantitative risk analysis is used in various scenarios within the oil & gas and petrochemical industries, including:

  • Capital-intensive projects: When undertaking large-scale projects such as offshore drilling, refining complexes, or petrochemical plants, quantitative risk analysis helps assess financial risks, schedule overruns, and potential cost escalation.
  • Safety and environmental risk assessment : Quantitative risk analysis aids in assessing risks related to safety hazards, such as fires, explosions, leaks, or spills. It also evaluates the environmental consequences of potential accidents or incidents.
  • Project portfolio management: In situations where multiple projects are being considered, QRA allows for a comparative assessment of different projects to identify the ones with the highest potential returns and the lowest exposure to risks.
  • Supply chain management: Quantitative risk analysis helps evaluate risks associated with supply chain disruptions, such as delays in equipment delivery, transportation bottlenecks, or geopolitical issues, enabling effective risk mitigation strategies.
  • Asset integrity management: By quantitatively assessing risks to the integrity of assets such as pipelines, storage tanks, or offshore platforms, organizations can prioritize inspection and maintenance activities, reducing the likelihood of failures and accidents.

Benefits of Quantitative Risk Analysis in Oil & Gas Projects

Cost and schedule estimation: By quantifying risks, organizations can estimate potential cost overruns and schedule delays, enabling better financial planning and resource allocation.

Improved safety and environmental management: QRA allows organizations to identify and prioritize safety hazards and environmental risks, providing insights into resource allocation for preventive measures and emergency response planning.

Effective risk mitigation and contingency planning: By quantifying risks, organizations can prioritize and plan appropriate risk mitigation strategies. It enables them to develop contingency plans and allocate resources based on the severity of potential impacts.

Project selection and optimization: QRA aids decision-making by comparing the potential risks and returns of different projects, helping to select and optimize project portfolios.

Regulatory compliance : Quantitative risk analysis provides the necessary data and evidence to meet regulatory requirements related to safety, environmental impact, and risk management.

Processes Involved in a QRA

  • Risk identification: Identify and document potential risks, considering internal and external factors that may impact the project or operations.
  • Data collection: Gather relevant historical data, industry standards, expert opinions, and other sources of information necessary for analysis.
  • Quantitative modelling: Develop mathematical models, simulations, and statistical techniques to quantify the likelihood and impact of risks.
  • Data analysis: Analyze the collected data, applying statistical analysis and simulations to estimate the potential outcomes of different threats and vulnerabilities.
  • Risk prioritization: Evaluate risks based on their quantitative values, considering financial impact, safety implications, environmental consequences, and strategic considerations.
  • Risk mitigation planning : Determine strategies to mitigate or manage risks based on their quantitative analysis, such as preventive measures, safety engineering controls, emergency response plans, or business continuity strategies.

Common Methods for Quantitative Risk Analysis in Oil & Gas Facilities

quantitative risk assessment method

QRA is a comprehensive method that combines multiple elements of risk analysis, including hazard identification, consequence analysis, and probability assessment. It uses mathematical models and data to estimate the likelihood and potential impacts of different hazard scenarios.

Some of the commonly used methods include:

Monte Carlo Simulation

Monte Carlo simulation is a technique that uses random sampling to model and analyze the uncertainty and variability in a system. It is often used in conjunction with QRA to assess the impact of multiple variables and uncertainties on the overall risk.

Fault Tree Analysis (FTA)

FTA is used in both qualitative and quantitative risk assessment. In quantitative risk assessment, FTA can be used to calculate the probability of the top event (undesired event) based on the probabilities of the underlying causes.

Event Tree Analysis (ETA)

ETA is a graphical method used to model the sequence of events following an initiating event and estimate the probability and consequences of different outcomes. It is often used in conjunction with FTA to assess the potential consequences of specific hazard scenarios.

Consequence Analysis

Consequence analysis involves estimating the potential consequences of a hazardous event, such as fire, explosion, or release of toxic substances. It may include assessing the impact on personnel, equipment, infrastructure, and the environment.

Also Read: Process Hazard Analysis Methods

Examples of When to Use Quantitative Risk Analysis in Oil & Gas

1. pipeline integrity: quantifying structural risks.

  – Probability Analysis for Leak Incidents

In the assessment of pipeline integrity, a crucial aspect is conducting a comprehensive probability analysis for potential leak incidents. This involves evaluating the factors that contribute to the likelihood of a leak occurring. Key elements in this analysis include:

  • Material Degradation Assessment: Examining the materials used in pipeline construction and assessing their susceptibility to corrosion or wear over time.
  • Operational Conditions: Analyzing the impact of operational parameters such as pressure, temperature, and flow rates on the likelihood of leaks.
  • Environmental Factors: Considering external elements like soil corrosivity, seismic activity, and weather conditions that may affect pipeline integrity.
  • Historical Incident Data : Incorporating data from past incidents to identify patterns and trends, contributing to a more accurate probability assessment.

– Consequence Assessment in Spill Scenarios

Once the probability of a leak is determined, the next step involves assessing the potential consequences of spill scenarios. This includes

  • Volume Estimation: Quantifying the potential volume of the spilled material based on factors such as pipeline diameter, pressure, and the nature of the transported substance.
  • Spill Pathway Analysis: Identifying the likely pathways the spilled material would take, considering factors like terrain, water bodies, and population density.
  • Environmental Impact Assessment: Evaluating the potential impact on ecosystems, water sources, and wildlife in the event of a spill.
  • Human Health and Safety Implications: Assessing the potential effects on nearby communities, considering factors like toxicity, flammability, and exposure pathways.

2. Process Safety Management: Applying Quantitative Methods

Process safety management within oil and gas facilities relies heavily on quantitative risk analysis. This involves:

Hazard Identification: Utilizing methods such as Hazard and Operability Studies (HAZOP) to identify potential hazards in the operation.

Frequency Analysis : Quantifying the frequency of identified hazards, considering factors like equipment failure rates, human error probabilities, and process deviations.

Consequence Analysis: Assessing the potential consequences of identified hazards, including the impact on personnel, equipment, and the surrounding environment.

Risk Quantification : Combining the results of frequency and consequence analyses to quantify the overall risk associated with specific processes or operations.

Mitigation Strategies : Developing and implementing risk mitigation strategies based on quantitative analysis, prioritizing actions to reduce the most significant risks.

Comparative Analysis of Qualitative vs Quantitative Assessments

Qualitative vs Quantitative Risk Assessment Methods

Qualitative and quantitative risk assessment methods are not mutually exclusive but they can complement each other in the overall risk management process.

Qualitative methods are often used in the early stages of risk assessment to quickly identify and prioritize major risks. Quantitative methods are then employed to provide a more detailed and accurate analysis of risks for informed decision-making.

Here is a list of the major advantages and limitations of both methods.

Addressing Common Misconceptions on both methods

Risk assessment is a complex process that involves both qualitative and quantitative methods. However, misconceptions about the two methods still exist. Here are two common myths surrounding risk assessment:

A. Myth: Quantitative Analysis is Always Superior

One of the most common misconceptions about risk assessment is that quantitative methods are always superior to qualitative methods. While quantitative methods provide a more detailed and accurate analysis of risks in many cases, they are not always the best approach.

Quantitative methods require extensive data collection and analysis, and they often incorporate complex mathematical models and statistical analysis. This can make them time-consuming, resource-intensive, and difficult to understand. In some cases, the data may be lacking or unreliable, making a quantitative approach less effective.

On the other hand, qualitative methods are generally quicker, simpler, and easier to understand. They are useful for initial screening and decision-making, especially when data is lacking or when risks need to be quickly identified and prioritized.

In summary, both qualitative and quantitative methods have their advantages and disadvantages, and the selection of the approach depends on the specific objectives and requirements of the risk assessment.

B. Myth: Qualitative Methods Lack Precision

Another common myth is that qualitative methods lack precision. While it is true that qualitative methods may not provide numerical results, precision is not always necessary or appropriate in risk assessment.

Qualitative methods are useful for screening and initial assessments, where the focus is on identifying and prioritizing risks. This involves expert judgment and subjective assessment, which is not always quantifiable. However, this does not mean that qualitative methods are imprecise or unreliable.

Concluding that qualitative methods can provide valuable insights into risk assessment, especially in the early stages where identifying and prioritizing risks is critical. Qualitative methods do not lack precision and can complement quantitative methods in the overall risk management process.

In conclusion, when it comes to risk assessment in oil and gas projects, both qualitative and quantitative methods are important in different project phases.

It is necessary for oil and gas projects to incorporate a combination of qualitative and quantitative risk assessment methods. By utilizing qualitative methods to identify and understand potential hazards and quantitative methods to assess the magnitude and probability of those hazards, organizations can effectively manage and mitigate risks in their projects.

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risk assessment qualitative vs quantitative

risk assessment qualitative vs quantitative

Qualitative vs. Quantitative Risk Assessment – Can There Be a Middle Road?

In my years as both a risk practitioner and ERM consultant , there has and continues to be intense debate around methods for assessing risks. (If you are unfamiliar with the meaning of qualitative and quantitative, this article provides a quick overview.)

To illustrate this debate, take the following two comments from a previous article asking whether quantitative is the only future of risk management :

risk assessment qualitative vs quantitative

As you can see from just these two comments on a blog post, it’s interesting the different perspectives you will run into, and like so many issues in today’s world, some of comments I’ve come across can be a little on the mean side. (Why can’t people provide constructive criticism without being mean?)

Qualitative methods can be easier to implement and maintain, especially for companies without strong modeling and statistical analysis capabilities. As I’ve seen over and over, qualitative risk assessment is an option for many organizations starting out simply because they will be overwhelmed if they jump into a full quantitative approach.

This overwhelm can be a huge setback for any risk management initiative that can possibly take years to dig out from…

But as promoters of a quantitative approach contend, qualitative-based risk assessment can be fraught with biases and even be dangerous since you are relying on subjective impulses of the person(s) giving the score as opposed to objective numbers, or as psychologist and Nobel prize winner Daniel Kahneman explains:

Overconfident professionals sincerely believe they have expertise, act as experts and look like experts. You will have to struggle to remind yourself that they may be in the grip of an illusion.

Of course, I’m not going to argue too much about the shortcomings of qualitative assessments, especially when you throw heat maps and risk matrices into the mix, because it is true – there are certainly downsides to using the method, some of which I have personally experienced. Honestly, I haven’t attempted to use a heat map since the early days of my ERM career, because as Douglas Hubbard says in this presentation , tools like this provide no clear answer to the question “Should we spend $X to reduce risk Y or $A to reduce risk B?”

But when I speak with companies, it becomes clear how most of them simply aren’t equipped to take full advantage of quantitative risk assessment methods, modeling, and so on. Fortunately, I have found that…

There’s a middle way to obtain probability ranges without extensive statistics experience.

A strict qualitative assessment method that relies on a 1-5 or low-medium-high scale is certainly fraught with all kinds of pitfalls – I get it.

However, as I’ve explained in other posts, sometimes this is the best you’ll be able to do, especially in the beginning stages of any ERM initiatives. In this case, you do what you can, knowing and communicating that the method is not permanent. As the program matures and capabilities grow, you and executives will need to move into more sophisticated assessment methods.

One approach that I use with some of my clients (…many of whom fall into this situation) is to assign specific criteria behind the scale/rating.

You see, one of the criticisms of qualitative (which I echo) is that the labels of “low”, “medium”, and “high” can mean different things to different people.

However, when you set probability ranges for each rating levels on the scale, or specific attributes behind what a level 3 impact means, you give the executive, manager, or information user a clear idea of what a specific ranking means in the context of a specific risk.

For example, when surveying the likelihood of risk(s) for a client, having probability ranges of <10%, 10-40%, 40-60%, 60-90%, and >90% can provide more clarity for decision-making. Again, simply saying the likelihood is a 3 or a 5 won’t help executives. It’s not perfect, but it is better than saying the risk has a “moderate” chance of occurring.

risk assessment qualitative vs quantitative

Pivoting to impact, let’s say you retain your 1-5 (insignificant-severe) scale but add different parameters on what a 3 means or a 2 means. For an example, your company relies heavily on computer systems to operate. A severe impact could consist of an “outage affecting > 25% of customers or unavailable for > 5 days” while an insignificant impact could be where an outage affects “…<1% of customers or Unavailable <4 hours.”

Of course, full quantitative methods where you have hard data to run models provides better insights on how a particular strategy, risk mitigation, or other idea could work out.

But according to Douglas Hubbard’s book Failure of Risk Management: Why It’s Broken and How to Fix It and the presentation mentioned earlier, there are several roadblocks to pursuing full quantitative assessment, with the most common being a lack of experience in statistics and modeling.

If that’s the situation you find your company in, a hybrid approach like the one described above can be a good first step for dipping your toe in the quantitative waters.

Regardless of where you’re starting out, it’s important that you’re always seeking to improve assessment processes since uncertainty will only continue to grow in the years ahead.

What have you tried doing to move your company from a qualitative to a more quantitative risk assessment approach?

I’m always interested in hearing more about what other risk practitioners are doing to help their organizations improve risk management processes. If you’re able to share your experience, do so by leaving a comment below or join the conversation on LinkedIn .

If your company is struggling to move beyond a basic qualitative approach or has found a strict quantitative approach too overwhelming, please schedule a call so SDS can help you move in the right direction.

Featured image courtesy of  Airam Dato-On via Pexels.com

  • Carol Williams
  • August 12, 2021
  • ERM Processes

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What’s the Difference? Qualitative vs. Quantitative Risk Analysis

Hint: quantification best supports business decisions.

NIST CSF, ISO 2700X, and other standards say that cybersecurity risk and its contributing factors can be assessed in a variety of ways, including "quantitatively" or "qualitatively." But what's the difference? Which is the better form of risk measurement for your organization? Why would you conduct a qualitative versus a quantitative risk analysis?

Let's explore the differences between quantitative and qualitative risk analysis.

Qualitative Cyber Risk Analysis

Analysts use ordinal rating scales (1 - 5) or assign relative ratings (high, medium, low, or red, yellow, green) to plot various risks on a heat map with Loss Event Frequency (or Likelihood) on one axis and Loss Severity (or Magnitude or Impact) on the other.

But how do analysts decide where to place the risks relative to each other? They decide based on their experience in risk management or — as Jack Jones writes in his book Measuring and Managing Information Risk: A FAIR Approach — their "mental models." In other words, these decisions are made based solely on the opinions of the people conducting the assessment.

Purely qualitative analyses are inherently subjective. This makes prioritizing risks a challenge. How do you determine, for instance, which red risk is the "most red?" Second, there is also no systemic way to account for the accumulation of risk (e.g., does yellow times yellow equal a brighter yellow?). Finally, there is a tendency to gravitate toward the worst-case scenario for Loss since analysts are forced to choose a specific value (e.g., red, yellow, green) versus assigning a value along a continuum.

As a result, ratings are subject to bias, poorly defined models, and undefined assumptions.

risk assessment qualitative vs quantitative

What Should a Risk Model Do?

“A model is a simplified representation of a more complex reality. It should support analysis by describing how things are related. Common security frameworks are not analytic models because they don’t define relationships, they categorize.

“It must be scenario-based so you are measuring the frequency and magnitude of loss event scenarios. If a model isn’t scenario-based, I don’t see how the results could be legitimate.

“It also should faithfully account for uncertainty using ranges or distributions as inputs and outputs, not as discrete values.

“The rationale for the inputs -- why you chose your data range and so forth -- should be open for examination. If analysis was done and there is no rationale, then you should be leery of the output."

--Jack Jones, creator of the FAIR model

What Is a Risk (or Loss Event) Scenario?

The building blocks of quantitative cyber risk analysis are risk scenarios that clearly state factors that we can quantify in percentage or dollar terms for likelihood and impact. Here’s a risk scenario template:

Threat Actor (attacks) >> Business Resource (with) >> Initial Attack Method (leading to) >> Attack Outcome (with) >> Loss Effect

Example: Malicious Cyber Criminals >> IP & Trade Secrets >> Phishing >> Ransomware with Data Exfiltration >> Loss of Integrity

Quantitative Cyber Risk Analysis

Instead of mental models that vary by analyst, the quantitative approach runs on a standard model that any analyst can use to produce consistent results. At Safe Security, we use the FAIR™ model — that's Factor Analysis of Information Risk — to perform quantitative assessments using the best available models and techniques.

FAIR takes the guesswork out of the concepts of Loss Event Frequency (or Likelihood) and Loss Magnitude, the two main components of Risk that are also leveraged in qualitative analysis. The difference is that ranges or distributions are used to capture high and low ends of possible outcomes rather than discrete values.

risk assessment qualitative vs quantitative

Various iterations of these inputs are then run through a Monte Carlo engine. The result is not a simple two-axis heat map, but a range of probable outcomes, as in this output from analysis on the Safe Security platform.

The model breaks down these two factors into subcomponents that can be estimated based on information collected from telemetry from attack surfaces, controls, or other sources, plus subject-matter experts in the company and industry-standard data, then builds them back up into accurate, overall estimates of Frequency (percentage probability of occurrence in a year) and Magnitude (in terms of dollars and cents of loss, annualized).

By using a probability distribution to identify the impact of potential risks, the FAIR model offers reliable data that can be used to inform business decisions with something more tangible and accurate than color categories -- for instance, top risks ranked for probability and impact, as shown in this output from the Safe Security platform:

risk assessment qualitative vs quantitative

Where Does the Frequency and Magnitude Data Come from?

Data is critical to getting the most out of risk quantification; it must be accurate and recent. The Safe Security platform leverages two recent breakthroughs in the development of FAIR analysis.

  • Enabling empirical measurement of control efficacy and value
  • Accounting for individual control functionality as well as systemic effects
  • Effectively leveraging cybersecurity telemetry
  • FAIR-MAM is an open, financial loss model that enables organizations to reliably quantify the impact of cyber incidents.
  • The model is composed of 10 primary cost modules (Business Interruption, Proprietary Data Loss, etc.) that can be customized to any organization’s cost structures.
  • Safe provides benchmark loss data based on FAIR-MAM cost categories out-of-the-box.

The Bottom Line

The attractiveness of qualitative heat maps or high-medium-low ranking is that they’re fast and easy. The problem is, they don’t force you to uncover the assumptions behind them – and people typically come at risk assessment with different assumptions. That can lead to mis-prioritizing of risks.

Secondly, qualitative approaches don’t enable sound decision-making. How much should you spend to mitigate a “high” risk and how would you know when it went so high as to be a material risk?

To make actual business decisions based on accurate estimation of impact, you need to quantify risk in financial terms, using a standard methodology that removes subjectivity. FAIR is the recognized standard for cyber risk quantification. Contact us for a demo of FAIR risk quantification in action .

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IMAGES

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  3. Risk+Analytical Practice Class 1

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COMMENTS

  1. Qualitative vs. Quantitative Risk Assessment

    Quantitative risk analysis provides more objective information and accurate data than qualitative analysis because quantitative risk assessment is based on realistic and measurable data used to calculate the impact values that the risk will create with the probability of occurrence.

  2. Risk Assessment and Analysis Methods: Qualitative and Quantitative

    "Quantitative risk analysis tries to assign objective numerical or measurable values" regardless of the components of the risk assessment and to the assessment of potential loss. Conversely, "a qualitative risk analysis is scenario-based."

  3. What's the Difference Between Qualitative and Quantitative Risk Analysis?

    The most obvious difference between qualitative and quantitative risk analysis is their approach to the process. Qualitative risk analysis tends to be more subjective.

  4. Qualitative vs. Quantitative Risk Assessment

    June 10, 2021 by Muhammad Asim Niazi Industrial risk assessments can be qualitative or quantitative; discover which RA best suits your facility's needs and why. Risk assessment (RA) activity tends to serve two purposes. First, it identifies a possible hazard in the process, followed by subsequent corrective actions to eliminate the hazard.

  5. Qualitative & Quantitative Risk Analysis

    As mentioned earlier, qualitative risk analysis is based on a person's perception or judgment while quantitative risk analysis is based on verified and specific data. Another difference is the values associated with risks. In qualitative risk analysis, this value is the risk rating or scoring.

  6. Qualitative risk analysis vs quantitative risk analysis: What's the

    Project management Posts Qualitative risk analysis vs quantitative risk analysis: What's the difference? Qualitative risk analysis vs quantitative risk analysis: What's the difference? Posts Project management Georgina Guthrie November 04, 2020

  7. Risk Assessment Definition, Methods, Qualitative Vs. Quantitative

    Key Takeaways Risk assessment is the process of analyzing potential events that may result in the loss of an asset, loan, or investment. Companies, governments, and investors conduct risk...

  8. Qualitative vs. Quantitative Risk Analysis (Comparison)

    October 21, 2022 Rachel Slabotsky NIST CSF, ISO 2700X, and other standards say that cybersecurity risk and its contributing factors can be assessed in a variety of ways, including "quantitatively" or "qualitatively." But what's the difference? Which is the better form of risk measurement for your organization?

  9. Evolving From Qualitative to Quantitative Risk Assessment

    Step 1: Business impact analysis —The risk assessment begins with analyzing the business impact, which, in this case, was rated 4 (high impact) on a scale of 1 (low) to 5 (very high). Step 2: Control assessment —The control assessment then followed, and it was based upon a predefined questionnaire and covered a wide range of mainstream IT ...

  10. Qualitative vs. Quantitative Risk Analysis: What's the difference?

    Qualitative Risk Analysis, on the other hand, applies a subjective assessment of risk occurrence likelihood (probability) against the potential severity of the risk outcomes (impact) to determine the overall severity of a risk.

  11. Qualitative vs. Quantitative Risk Analysis: What's the Difference?

    Qualitative vs. Quantitative Risk Analysis Qualitative and Quantitative risk analysis methods function to assess the same criteria at different capacities.

  12. Qualitative vs Quantitative Risk Analysis

    Qualitative risk management provides a more subjective lens, harnessing the power of expert judgment to assess potential threats based on perceived likelihood and impact (Shick, 2023). This approach relies on teams' collective wisdom rather than solely complex data.

  13. Qualitative vs Quantitative Risk Analysis: A Full Guide

    9:08 pm No Comments Last Updated on January 28, 2024 by Ossian Muscad Risk is an inherent part of any project; you must take the time to identify and analyze potential risks before work begins. Two well-established methodologies for risk analysis are qualitative and quantitative. But what are they, how do they differ, and how do you use them?

  14. A Quick Guide to Qualitative Risk Analysis

    Qualitative risk analysis evaluates the likelihood and impact of risks on a project or organization. It involves identifying potential risks, assessing their probability and effect, and categorizing them based on severity. This method is often used with quantitative risk analysis, which involves assigning numerical values to risks and ...

  15. Qualitative risk assessment

    While detailed quantitative analysis of risks is always preferred, in many cases this is neither practical nor possible. Qualitative assessment of risks, however, can always be performed, and will usually take far less time and resources than quantitative analysis. Basic Concepts

  16. How to link the qualitative and the quantitative risk assessment

    Through a scoring system the model is able to integrate all the risked effects of each single risk in order to identify and prioritise the main sources of risk, the impact areas and thus to provide an objective support to drive the following quantitative risk evaluation step. Introduction

  17. Quantifying the Qualitative Technology Risk Assessment

    Qualitative vs. Quantitative Risk Assessments. There are two types of risk assessments: quantitative and qualitative. 2, 3 Qualitative risk assessments include identifying and analyzing risk factors using an expert evaluation based on an enterprise's risk management standard or framework with predefined risk ratings (i.e., high, medium, low ...

  18. Top 8 Differences of Qualitative And Quantitative Risk Analysis

    Last updated on February 15, 2021 Qualitative and quantitative risk analysis techniques, the basic backbone that allows every project to be delivered on time per customer expectation. Yes, you read it correctly; identifying any threat in advance will provide room for making necessary corrections in the project.

  19. Qualitative Vs Quantitative Risk Assessment (Comparison)

    A. Myth: Quantitative Analysis is Always Superior B. Myth: Qualitative Methods Lack Precision Conclusion Qualitative Vs Quantitative Risk Assessment Qualitative risk assessment is a subjective approach that focuses on the likelihood and impact of identified risks.

  20. Qualitative vs. Quantitative Risk Assessment

    In my years as both a risk practitioner and ERM consultant, there has and continues to be intense debate around methods for assessing risks.(If you are unfamiliar with the meaning of qualitative and quantitative, this article provides a quick overview.) To illustrate this debate, take the following two comments from a previous article asking whether quantitative is the only future of risk ...

  21. What's the Difference? Qualitative vs. Quantitative Risk Analysis

    Quantitative Cyber Risk Analysis. Instead of mental models that vary by analyst, the quantitative approach runs on a standard model that any analyst can use to produce consistent results. At Safe Security, we use the FAIR™ model — that's Factor Analysis of Information Risk — to perform quantitative assessments using the best available ...

  22. Qualitative vs. Quantitative Cybersecurity Risk Assessment: What's the

    Qualitative vs quantitative risk assessments: Why your business needs both. Both quantitative and qualitative risk assessments are needed for a well-rounded view of the risk management process. The reason is that effectively managing risk requires not only understanding impact but creating a framework that sets the acceptable level of risk to ...

  23. Qualitative vs. Quantitative Risk Assessments: Which is better or

    In qualitative risk assessment, the focus is on interested parties' perceptions about the probability of a risk occurring and its impact on relevant organizational aspects (e.g., financial ...

  24. Federal Register :: Special Purpose Acquisition Companies, Shell

    Another commenter said that, "in addressing non-equity compensation and reimbursements, proposed Item 1603(a)(6) should explain its requirement to identify other compensation and reimbursements that are material, individually or in the aggregate and that the required disclosure may be qualitative and not quantitative, except where amounts are ...