Risk analysisRisk identification and measurement

What is risk analysis?

It means finding and measuring risks.

Why is risk identification important?

Because unknown risks might be ignored by accident.

What is implicit retention?

It’s when a company keeps a risk without knowing it.

What makes risk identification hard?

New rules, new problems, and new types of risks.

Give an example of a new risk.

COVID-19 or cyberattacks.

What are the main types of business risks?

Property, liability, business income, strategic, HR, operational, intangible, government, market, and credit risks.

What kinds of risks can a business have?

Things like damage, lawsuits, losing money, bad planning, employee issues, system failure, bad reputation, government rules, market drops, or unpaid debts.

What are some ways to find risks?

Use checklists, group ideas, look at places, read numbers, draw process maps.

What is SWOT for?

To look at a company’s strengths, weaknesses, and outside threats or chances.

What is HAZOP used for?

To check each step of a process for possible problems (used in factories).

What is a random variable?

A result you can't predict exactly.

What is a probability distribution?

A list of all possible results and their chances.

What is expected value?

It’s the average result you expect.

What is the formula for expected value?

EV = outcome × chance, added together.

What does EV tell you?

What you’re likely to get on average.

What is variance?

It shows how far results are from the average.

What is the formula for variance?

Variance = chance × (result – average)². Variance = chance × (result – average)^2.

What does high variance mean?

Results change a lot.

What is standard deviation?

It’s the square root of variance.

Why is standard deviation helpful?

It shows how much results usually change.

What is skewness?

It shows if results are even or uneven.

What is positive skewness?

Most results are small, but one big loss is possible.

What is MPL?

A big loss that could happen with a small chance.

What does MPL at 5% mean?

There’s a 5% chance of losing more than that amount.

What is VaR?

How much you might lose in a time period, with a certain chance.

What does VaR at 5% mean?

There’s a 5% chance you lose more than that amount.

What is correlation?

It shows how two things move together.

What is positive correlation?

Both go up or down together.

What is negative correlation?

One goes up when the other goes down.

What does a correlation of zero mean?

They’re not connected.

What is the range of correlation?

From -1 to 1.

How can past data help?

It helps guess future problems.

What is a regression?

A way to guess one number from another.

What’s the formula for regression?

Y = α + βX

What is a risk map?

A chart that shows how often risks happen and how bad they are.

What is gross risk?

Risk before doing anything about it.

What is net risk?

Risk after actions like insurance or controls.

What is the risk management matrix?

A tool to match risks with the best solution.

What is NPV?

It’s the value of future money minus what you spend now.

Why do we use discounting?

Because money now is worth more than money later.

What is the NPV formula?

NPV = future cash / (1 + rate)^years – cost now. NPV = future cash / (1 + rate)^years – cost now.

What does a positive NPV mean?

The project is a good idea.

What personal risks exist?

Health, property damage, or getting sued.

How many risk tools are listed in ISO 31010?

31 different ways to study risks.