Quantitative risk management is a very important process in the context of the modern day business world. It primarily deals with the concepts of risk and hazard and tries to reduce the chances of the occurrence of any form of financial loss.
The concepts of hazard and risk are important in the context of quantitative risk management.
Explanation of Quantitative Risk Management
As far as the process of quantitative risk management is concerned the concept of hazard is a very important one. Hazard has been defined as a situation or a group of situations whereby there is a chance of financial loss. Risk is explained as the possibility of financial losses.
Risk is also regarded as a combination of these three factors:
Possibilities of a hazard
Possibilities of high losses being suffered as a consequence of the accident
Possibilities of a hazard leading to an accident
Inputs of Quantitative Risk Analysis
The inputs of the process of Quantitative Risk Analysis are as follows:
Organizational Process Assets
Project Scope Statement
Project Management Plan
Risk Management Plan
The organizational price assets are basically information regarding a particular project that is similar to the one that is being analyzed. This sort of information is taken from project archives. They may also be the study results of risk specialists as well as a database of proprietary risk.
The project scope statement highlights the positive aspects of a particular business project. The risk management plans contain information on the risky aspects of a particular business endeavor like:
Types of Risk
Explanations of impact and probability
Timing and Schedule of Risks
Probability and Impact Matrix
The Risk Register performs a similar function to the risk management plans. It also categorizes and prioritizes the various aspects of the process of quantitative risk analysis. The project management plans are made up of the cost management plans and the schedule management plans. The former shows ways to run the project and the later deals with the financial aspects of the project.
Functioning of Quantitative Risk Management
The primary function of the process of quantitative risk management is to deal with the various elements of the phenomenon of risk by trying to bring down the possibilities of such mishaps. It also tries to limit the extent of loss that may take place if a hazard happens.
There are some important aspects as far as the functioning of the process of quantitative risk management is concerned:
Modeling and Simulation
Expected Monetary Value
Decision Tree Analysis
Output of Quantitative Risk Management
The outputs of the quantitative risk management are the results of the process. Under normal circumstances the only output of a quantitative risk management process is a risk register.
The risk register is made up of the following components:
Trends in quantitative risk analysis
Probabilistic analysis of the project
Prioritized list of quantified risks
Probability of achieving cost and time objectives
Last Updated on : 8th July 2013