Bringing Quantitative Risk Analysis to Enterprise Risk Management

Posted by: Sarah Hamilton

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Quantitative risk analysis (also referred to as assessment) has been an important tool in the financial industry for a long time. In quantitative risk assessment all the risks are quantified, as the name suggests, which makes the risk management process more objective and manageable.

Quantitative Risk Analysis

While assessing risks quantitatively is common in the financial industry, other industries lag far behind. You would be astonished at how many businesses have no risk management framework or monitoring. Their upper management is aware of the risks and the risks are brought up in discussions, but they are not being actively managed or monitored.

Managing risks by quantifying them is an illuminating experience. It allows you to not just be aware of the risks that affect your business, but to also assess the amount of damage those risks can cause your business. You can then see how each decision you make will affect your risk exposure as well, which makes the analysis an important part of any risk management plan. If you are wondering how to quantify the risks of your business and industry, here’s how you can start.

Risk Identification

The first step of managing risks through quantitative risk analysis tools is to be aware of all the risks that affect the business. Most businesses vastly underestimate the risks that their business is exposed to, which can lead to disaster. The biggest mistake that businesses make is not involving all stakeholders during the risk identification process. Management can only be aware of a few risks – there are a lot more risks which only the ground level and front-line employees know about.

A good practice is to send out a companywide email if the company has less than 100 employees. If there are more employees, it is better to communicate with the manager of each team. Ask them which risks they think the business needs to manage (Managing Risk – Both known and unknown). There will be a lot of useless answers, since not everyone will understand which enterprise risks matter, but there will also be a lot of risks which management will not be aware of. Getting the departments of each head to participate is also very important.

Asking directly about risks isn’t always the right way. If you ask a department which risks it faces, you may get vague answers. To get a better answer ask every department what events can cause their progress to slow down or stop and ask them about all such events they have been through.

Risk Quantification

Once your organization has identified all the risks that affect it the next step is to quantify these risks. It is good to create a scale to represent the severity of these risks. The least severe risks are the ones that have a small effect on the performance of your business. The most severe risks are the ones that can result in the business itself failing. A less severe risk than that would be every risk that can cause operations to shut down, and so on. Quantitative risk analysis only works if you assess risks properly and rank them properly as well.

Once you have identified the severity of each risk you will have a rudimentary risk management framework in place.

Risk Monitoring

Quantitative risk analysis required you to actively monitor all the risks that have been identified, because the severity and the probability of these risks changes continuously. Risks need to be monitored and all changes that occur need to be included in the quantitative risk analysis. This creates a live view of all risks being faced by the business, which alerts management to any risk development they need to be aware of. This proactive approach towards risk management results in a strong risk management framework.

How GRC Helps With Quantitative Risk Analysis

Assessing risks needs to be done manually, but monitoring risks manually is not a sustainable process. Spreadsheets have limited functionality and they are completely dependent on human input for updates. GRC solutions like the Predict360 Risk Management Software automate the whole process. Once you have identified the risk and entered it into the risk management system the quantitative risk analysis will be automatically done by the system. Monitoring is also automated – if anything needs your input you will get a notification for it. If you want to see what a risk management solution can do for your organization then get in touch with our team. We will arrange a demo of Predict360’s risk management features and what they can do for your organization.

About the Company

360factors, Inc. (Austin, TX) helps companies improve business performance by reducing risk and ensuring compliance. Predict360, its flagship software product, vertically integrates regulations and requirements, policies and procedures management, risks and controls, audit management and inspections, and on-line training and qualifications, in a single cloud-based platform based on artificial intelligence.

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