You might have heard the words Risk Analytics and Analysis thrown around a lot. But what is risk analytics, and how do they help? Is it an important part of an organization? How does it benefit a business? Read on for the answers to all these questions.
What Are Risk Analytics?
Risk analytics or analysis is the process of identifying and assessing the likelihood of potential issues that could have a negative effect on a company, government, or other sectors. Risk analysis exists to help companies and organizations avoid or soften their risks.
It is the study of the uncertain effects on a company’s cashflows, forecasted stock returns, and the potential risk of failures or success of certain projects they may be planning on undertaking. Not only do companies use it, but governments as a whole use it also.
Why is Risk Analysis Important?
Risk Analysis is a very important part of an organization. Risk analytics predicts and prepares you for any harmful effects of any event. People use it to evaluate the potential risk of failure of a new project and whether the potential benefits of a project outweigh the potential losses of the project.
Risk analysis is also used to identify and plan for changes in outside factors like government or federal policies. It’s a helpful way to plan for responding against potential equipment malfunctions from either human errors or natural causes.
Risk Analytics gives organizations opportunities to plan for unexpected events and also lets them evaluate the risk and rewards balance of any investment opportunity.
The risk analytics industry assessed many different types of risks. Every industry faces different scenarios and has to prepare for different outcomes. There is Fraud risk, Credit risk, Supply chain risk, Transportation and logistical risk, and a lot more. This is why risk analytics is an important part of any and all industries.
Qualitative vs. Quantitative Risk Analysis
Qualitative and Quantitative are the two approaches when it comes to Risk Analytics. Qualitative risk analysis evaluates risk involving a number of uncertainties and considers the impact of said uncertainty. It is used to plan out countermeasures in a negative event. For example, a qualitative risk assessment would be on a low – medium – large scale, indicating how likely an event is to occur. It can also be expressed in percentages like Event A has a 45% probability of occurring while Event B has a 60% likelihood. This lets companies prioritize and focus on whatever event is more likely to happen.
In quantitative risk analysis, companies assign specific monetary amounts representing how much they could potentially lose in the event of something adverse. For instance, a construction company could evaluate and assess how much money they could lose if there were a delay in their building projects of over a week and so on. This lets organizations prioritize and focus on preparing for events with higher potential financial losses than those that don’t.
