You are preparing to complete the quantitative risk analysis process with your project team and several subject matter experts.
You gather the necessary inputs including the project's cost management plan.
Why is it necessary to include the project's cost management plan in the preparation for the quantitative risk analysis process?
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A. B. C. D.A.
The cost management plan is an input to the quantitative risk analysis process because of the cost management control it provides.
The cost management plan sets how the costs on a project are managed during the project's life cycle.
It defines the format and principles by which the project costs are measured, reported, and controlled.
The cost management plan identifies the person responsible for managing costs, those who have the authority to approve changes to the project or its budget, and how cost performance is quantitatively calculated and reported upon.
Incorrect Answers: B: The cost management plan defines the estimating, budgeting, and control of the project's cost.
C: While the cost management plan does define the cost change control system, this is not the best answer for this D: This is not a valid statement.
The cost management plan is an input to the quantitative risk analysis process.
The project's cost management plan is an essential input to the quantitative risk analysis process for several reasons.
Firstly, the cost management plan provides information on the budget for the project, including the baseline budget, cost estimates for individual activities, and the overall project budget. This information is critical to the risk analysis process, as it enables the project team to assess the potential impact of identified risks on the project's overall cost. Without this information, it would be challenging to determine the financial impact of risks on the project.
Secondly, the cost management plan outlines the project's cost control processes, including how actual costs will be monitored and measured against the project's budget. This information is necessary for the risk analysis process, as it enables the project team to identify areas where costs may be increased or decreased due to identified risks. By understanding the cost control processes, the team can develop a more accurate risk analysis that takes into account how the costs of the project may be impacted by identified risks.
Finally, the cost management plan can also provide direction on how costs may be changed due to identified risks. For example, the plan may include information on contingency reserves or management reserves, which are funds set aside to cover unexpected costs. These reserves can be used to address risks that may impact the project's cost, and the plan provides guidance on how to determine the appropriate level of reserves to include.
In summary, the project's cost management plan is a critical input to the quantitative risk analysis process. It provides critical information on the project's budget, cost control processes, and direction on how costs may be changed due to identified risks. This information enables the project team to develop a more accurate risk analysis that takes into account the potential financial impact of identified risks on the project.