Risk analysis is the study of the underlying uncertainty of a given course of action and refers to the uncertainty of forecasted cash flow streams, variance of portfolio/stock returns, the probability of a project’s success or failure, and possible future economic states within the corporate, government, or environmental sector.
‘Risk Analysis’
A risk analyst starts by identifying what could go wrong
Quantitative Risk Analysis
Risk analysis can be quantitative or qualitative
- Under quantitative risk analysis, a risk model is built using simulation or deterministic statistics to assign numerical values to risk
- For any given range of input, the model generates a range of output or outcome
- The model is analyzed using graphs, scenario analysis, and/or sensitivity analysis by risk managers to make decisions to mitigate and deal with the risks
Qualitative Risk Analysis
Qualitative risk analysis does not identify and evaluate risks with numerical and quantitative ratings
- It involves a written definition of the uncertainties, an evaluation of the extent of impact if the risk ensues, and countermeasure plans in the case of a negative event occurring
