Risk analysis (Business)
Encyclopedia
Risk analysis is a technique to identify and assess factors that may jeopardize the success of a project
or achieving a goal.
This technique also helps to define preventive measures to reduce the probability of these factors from occurring and identify countermeasures to successfully deal with these constraints when they develop to avert possible negative effects on the competitiveness of the company. Reference class forecasting
was developed to increase accuracy in risk analysis.
One of the more popular methods to perform a risk analysis in the computer field is called facilitated risk analysis process (FRAP).
FRAP assumes that additional efforts to develop precisely quantified risks are not cost effective because:
After identifying and categorizing risks, a team identifies the controls that could mitigate the risk. The decision for what controls are needed lies with the business manager. The team's conclusions as to what risks exists and what controls needed are documented along with a related action plan for control implementation.
Three of the most important risks a software company faces are: unexpected changes in revenue, unexpected changes in costs from those budgeted and the amount of specialization of the software planned. Risks that affect revenues can be: unanticipated competition, privacy, intellectual property right problems, and unit sales that are less than forecast. Unexpected development costs also create risk that can be in the form of more rework than anticipated, security holes, and privacy invasions.
Narrow specialization of software with a large amount of research and development expenditures can lead to both business and technological risks since specialization does not necessarily lead to lower unit costs of software.
Combined with the decrease in the potential customer base, specialization risk can be significant for a software firm. After probabilities of scenarios have been calculated with risk analysis, the process of risk management
can be applied to help manage the risk.
Methods like applied information economics
add to and improve on risk analysis methods by introducing procedures to adjust subjective probabilities, compute the value of additional information and to use the results in part of a larger portfolio management
problem.
Project
A project in business and science is typically defined as a collaborative enterprise, frequently involving research or design, that is carefully planned to achieve a particular aim. Projects can be further defined as temporary rather than permanent social systems that are constituted by teams...
or achieving a goal.
This technique also helps to define preventive measures to reduce the probability of these factors from occurring and identify countermeasures to successfully deal with these constraints when they develop to avert possible negative effects on the competitiveness of the company. Reference class forecasting
Reference class forecasting
Reference class forecasting is the method of predicting the future, through looking at similar past situations and their outcomes.Reference class forcasting predicts the outcome of a planned action based on actual outcomes in a reference class of similar actions to that being forecast. The theories...
was developed to increase accuracy in risk analysis.
One of the more popular methods to perform a risk analysis in the computer field is called facilitated risk analysis process (FRAP).
Facilitated risk analysis process
FRAP analyzes one system, application or segment of business processes at time.FRAP assumes that additional efforts to develop precisely quantified risks are not cost effective because:
- such estimates are time consuming
- risk documentation becomes too voluminous for practical use
- specific loss estimates are generally not needed to determine if controls are needed.
After identifying and categorizing risks, a team identifies the controls that could mitigate the risk. The decision for what controls are needed lies with the business manager. The team's conclusions as to what risks exists and what controls needed are documented along with a related action plan for control implementation.
Three of the most important risks a software company faces are: unexpected changes in revenue, unexpected changes in costs from those budgeted and the amount of specialization of the software planned. Risks that affect revenues can be: unanticipated competition, privacy, intellectual property right problems, and unit sales that are less than forecast. Unexpected development costs also create risk that can be in the form of more rework than anticipated, security holes, and privacy invasions.
Narrow specialization of software with a large amount of research and development expenditures can lead to both business and technological risks since specialization does not necessarily lead to lower unit costs of software.
Combined with the decrease in the potential customer base, specialization risk can be significant for a software firm. After probabilities of scenarios have been calculated with risk analysis, the process of risk management
Risk management
Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities...
can be applied to help manage the risk.
Methods like applied information economics
Applied information economics
Applied information economics is a decision analysis method developed by Douglas W. Hubbard and partially described in his book How to Measure Anything: Finding the Value of Intangibles in Business . AIE is a method for the practical application of several proven methods from decision theory and...
add to and improve on risk analysis methods by introducing procedures to adjust subjective probabilities, compute the value of additional information and to use the results in part of a larger portfolio management
Investment management
Investment management is the professional management of various securities and assets in order to meet specified investment goals for the benefit of the investors...
problem.
See also
- Benefit risk
- Cost risk
- Fuel price risk managementFuel price risk managementA specialization of both financial risk management and oil price analysis – and similar to conventional risk management practice – fuel price risk management is a continual cyclic process that includes risk assessment, risk decision making, and the implementation of risk controls...
- Optimism biasOptimism biasOptimism bias is the demonstrated systematic tendency for people to be overly optimistic about the outcome of planned actions. This includes over-estimating the likelihood of positive events and under-estimating the likelihood of negative events. Along with the illusion of control and illusory...
- Reference class forecastingReference class forecastingReference class forecasting is the method of predicting the future, through looking at similar past situations and their outcomes.Reference class forcasting predicts the outcome of a planned action based on actual outcomes in a reference class of similar actions to that being forecast. The theories...
- Extreme riskExtreme riskExtreme risks are risks of very bad outcomes or "high consequence", but of low probability. They include the risks of terrorist attack,biosecurity risks such as the invasion of pests, and extreme natural disasters such as major earthquakes.-Introduction:...
- Risk managementRisk managementRisk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities...