Ten Steps To Incorporating Risk Analysis Into Your Business

by David Vose

Every authoritative guideline on risk management advocates the quantitative (that is, probabilistic) evaluation of risk using Monte Carlo simulation – from ISO , COSO , NASA , RAND Corporation , AACE International and APM , to Solvency II and Basel II/III . There is some variation in terminology, but a general agreement on the basic process of risk management is shown in the following diagram. Key weak spots in the process are typically: risks are evaluated poorly (either qualitatively or quantitatively); and the low quality of the data collection process that helps identify and evaluate risks and their mitigation. In addition, the key failures in applying this process are: establishing the context; actually implementing the risk mitigation strategies that have been agreed; and checking the mitigations stay in place (highlighted).

Quantitative risk analysis (QRA) forms only a part of the whole risk management process…

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