How Risk Analysis Works

Risk analysis is the process of assessing the likelihood of an adverse event occurring within the corporate, government, or environmental sector.

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, the variance of portfolio or stock returns, the probability of a project's success or failure, and possible future economic states.

• Quantitative Risk Analysis. Under quantitative risk analysis, a risk model is built using simulation or deterministic statistics to assign numerical values to risk. Inputs that are mostly assumptions and random variables are fed into a risk model.
• Qualitative Risk Analysis. Qualitative risk analysis is an analytical method that does not identify and evaluate risks with numerical and quantitative ratings. Qualitative analysis involves a written definition of the uncertainties, an evaluation of the extent of the impact (if the risk ensues), and countermeasure plans in the case of a negative event occurring.