Risk analysis techniques

By Ian Hawkins – 1998

Abstract / Introduction:

The purpose of this class is to provide an idiosyncratic review of the techniques for risk analysis that a risk management professional should be familiar with. This document contains a large number of references and you should spend some time tracking a few of them down, particularly in areas where you feel less comfortable with your own experience or the class content. There is no guarantee that the information presented here is either correct or what the examiners will be questioning you on.

Let’s assume that our overall goal is to create a quantitative measure of risk that can be applied to the business unit we are responsible for. Sitting on our hands doing nothing is not an option. We need a measure of risk that can be applied at all levels of an organization either to an isolated business unit or in aggregate to make decisions about the level of risk being assumed in those business units and whether it is justified by the potential returns. A sensible objective is to conform to (no more than) industry best practice at a reasonable cost. The standard industry approaches set out below are a starting point.