QUANTIFICATION OF RISK AND VARIOUS METHODOLOGIES

QUANTIFICATION OF RISK AND VARIOUS METHODOLOGIES

Risk Assessment is an important step in the risk management process. Risk assessment is the determination of qualitative and quantitative values of the risk related to a situation or a recognised threat. Risk assessment is necessary for developing a comprehensive risk mitigation plan.

Risk Measurement - Once risks have been identified, they are assessed and measured in order to determine their probability of occurrence, costs, opportunity, social and eventual impact on the entity’s profitability and capital. This can be done using various techniques ranging from simple to sophisticated models. Accurate and timely measurement of risk is essential to effective risk management systems. Good risk measurement systems assess the risks of both individual transactions and portfolios.

Risk assessment is the determination of quantitative or qualitative estimate of risk consequence related to a scenario or situation and an identified threat or hazard.
Risk quantification is the process of evaluating and defining the cost and benefits associated with the risk consequences. For example historical share price data of public listed entities can be mined to make assessments of possible future price movements, in light of past fluctuations of the share price for the purpose of making an investment decision.