• Steve Schlarman

Three Reasons Why Your Organization Needs Risk Quantification


Uncertainty. It feels as though a new force emerges every day that creates a little more uncertainty in the world. Riding the waves of insecurity in financial markets, competitive industries, legislative and regulatory environments, and societal shifts has become a major challenge as organizations look to the future. This is the fundamental reason organizations today need to take a deeper look at how risk management is approached and integrated within the business.


Risk management must take into consideration where your organization is headed. What decisions are you trying to make to meet your objectives? What questions are you trying to answer? What analysis into possible obstacles can help you choose the right path? These are the primary questions risk analysis seeks to answer.


Risk analysis could be just simple, qualitative, rational thinking; it could be in-depth statistics; or it could be anything in between. Whatever is the quickest, the most believable, and the most defensible way to help guide decision-making in solving problems -- that is what risk analysis is all about.


Risk quantification represents the next phase in driving greater precision and meaning in discussions risk management teams have with their business partners.


There are a number of reasons why risk analysis and risk quantification is increasingly important for your organization:


REASON #1: Get the most out of your data.


Why would you not want to make the best use of the data you have? If your organization is like most organizations, you have implemented multiple processes to gather risk and compliance data, such as risk assessments, business impact analyses, and compliance reviews. These processes provide tactical views into the state of risk and controls in your environment -- but they can be leveraged for so much more.


You can only really express the knowledge in your data if you go down a quantitative path. At the rate data is created within organizations, a rational, intelligent method is required to aggregate and derive meaning from the data. Quantification is the best path to take in making the most of your data.


REASON #2: Risk quantification is not as difficult as you may think – and you are probably (almost) already doing it.


For many people, risk quantification can sound like a little bit scary, even dreadful proposition. You may think “I am going to have to get a PhD in mathematics to do this.” And traditional risk approaches already seek to answer the same questions: “What are the chances of a risk happening? And how big is the risk likely going to be?”


In reality, understanding the basics of probability lays a strong foundation. Plus, you can accomplish a great deal even with very little quantitative information.


Quantitative approaches are really about being able to say the thing that you mean.


At a very simple level, risk quantification enables probability and impact – traditional inputs to the risk equation – to be expressed in increasingly more precise measures. Leveraging the same knowledge, you already use to select between “low” and “high” levels for risk, risk quantification gives you the ability to be more expressive with numbers, rather than relying on ranges. Risk quantification enables you to use the same qualitative measures -- likelihood and impact – as you are today, with added expression of what you think AND the full benefits of quantification.


REASON #3: The benefits of risk quantification are exponential.


It is nice to say ‘let's do it’, but on its own, risk quantification is not just about starting to use math. By quantifying things, you can essentially add them up, whereas you cannot add up your reds, oranges, and greens. You can say how many reds, how many oranges, and how many greens. And at what point do those become black? When do we have so many blacks that it causes real concern? If all you have is a list of columns of how many of each, that is not effectively telling you just how much exposure you face.


You need to lock into what your total amount of risk looks like. When you want to prepare a meal, you can optimize your grocery shopping efforts by balancing cost and quality. Your shopping list lets you know what to buy from the supermarket; you can compare prices of items in the store; and your store receipt adds up the total cost of your groceries; and We all like that flexibility and predictability. We can do the same thing with risk – if you translate those red/yellow/greens into numbers.


Archer Insight Delivers Enterprise-Wide Risk Quantification


Archer® Insight is a suite of enterprise-wide risk quantification capabilities designed to deliver risk and business leaders a complete view of enterprise risks to improve resilience and ensure achievement of its strategic goals. For example, Archer Insight allows you to use built-in techniques like Monte Carlo simulation, so you do not need to do all of the modeling yourself. Archer Insight can help you aggregate risk into meaningful quantitative measurements -- and when you can add things, you can compare them. It allows you to compare risks and investments needed to mitigate, reduce, transfer or avoid risk.


Archer Insight is entirely quantitative, enabling you to combine all the threats to your organization and truly understand the risks that matter. It makes quantitative risk management quick and easy to use by providing a full set of tools and features for understanding and managing all types of risk in one platform: operational, project, cyber-security, health and safety, investment and cashflow risk.


For more information, register for our upcoming "It's Not Just Math: Applying Risk Quantification to Benefit Your Business" webinar at 11:00 am EDT on Thursday, July 2 with Archer's quantitative risk management expert Graeme Keith to learn:

  • How risk quantification fits into your long-term risk management strategy

  • Methods to get moving in the right direction to incrementally bring value to the business through risk management

  • Practical approaches to improve how you communicate risk to leadership

Register today to learn more!