Identification is the most important step in the Process of Risk Management. You can’t manage what hasn’t been identified.
But, once you have identified exposures to financial loss, and before any insurance decisions are made, you must analyze the exposures; qualitatively and quantitatively.
Risk Analysis – The assessment of the potential impact that various exposures can have on the organization.
Qualitative Risk Assessment – Purpose: To identify those loss exposures that cannot be easily measured by traditional statistical or financial methods and to understand their impact on the organization’s ultimate risks and performance.
Qualitative Analysis vs. Quantitative Analysis
- Qualitative Analysis
• Can’t be precisely measured
• To determine implications and scope of effects that risks have on the organization
- Quantitative Analysis – “How much?” Precisely measured by acceptable traditional methods.
Qualitative Risk Assessment Areas
- Management’s Appetite for Risk
- Innovation, product development, marketing
- Contractual Analysis
- Compliance and Regulatory Analysis
- Employee Safety Issues
- Social Responsibility and Citizenship Analysis
- Internal policies