Bishop 4.3 - Link between qualitative and quantitiative risk analysis

Question 1

Risk Analysis Tools

Answer 1

Quantitative – Monte Carlo
simulations and mathematical
modeling

Semi-quantitative: Multicriteria
analysis

Qualitative: ISO31000, HAZOP
and FMECA

Question 2

Qualitative Advantages

Answer 2

• Is relatively quick and easy
• Provides rich information in
  addition to financial impacts such
  as health & safety and reputation
• Is well understood by employees
  who may not be trained in
  quantitative techniques

Question 3

Qualitiative Disadvantages

Answer 3

Gives limited difference between
levels of risk
* Is imprecise – risk in the same risk
rating can represent very different
amounts of risks
* Cannot numerically integrate and
address risk interactions
* Provides limited ability to perform
cost-benefit analysis

Question 4

Quantitiative Advantages

Answer 4

• Allows numerical integration
• Permits cost-benefit analysis of
  risk response options
• Enables risk-based capital
  allocation to business activities

Question 5

Quantitiative Disadvantges

Answer 5

Can be time-consuming and costly
especially during model development
* May overlook qualitative impacts as it
requires units of measure
* May imply greater precision than the
uncertainty of inputs warrant
* Working and assumptions may not be
apparent

Question 6

Quantititaive Risk Techniques

Answer 6

Decision Tree Analysis – a diagram that shows the
implications of choosing one or other alternatives.
* Expected Monetary Value (EMV) – a technique used to
compute the expected monetary outcome of a decision or
risk based on the probability and cost of different options
* Monte Carlo Analysis – a technique use to combine
probability distributions and multiple iterations to
generate a distribution of likely outcomes
Sensitivity Analysis – a technique used to determine
which risks have the greatest impact on a project
* Modelling and Simulations – A simulation uses
computer models that translates uncertainties usually
expressed as probability distributions into their potential
impact on objectives
* Multi-criteria Analysis – A tool for evaluating options
against multiple conflicting decision criteria