It has been asserted through research that risk assessment is a function of two variables, the likelihood or probability of the event, and the severity of the consequences of the event. Literatures have been divided between those that consider the vital role that likelihood information might play when quantitatively and analytically evaluating the magnitude of risk versus those that intuitively overestimate risks when formulating their judgments due to the emotional effects of severity without considering much the likelihood information. It has been concluded that adopting a neutral approach between these two perspectives, with careful consideration of their biases, would optimally help managers in identifying and mitigating their risks.
This post presents several quantitative and qualitative risk analysis techniques and discusses how to apply them through a case study example. For more information about risk management, kindly check out the list of articles here.