Risk assessment is the technique of identifying the likelihood and consequences of possible incidents that have an adverse impact on the business process. The purpose of the risk assessment is to avoid the potential negative effects of any unprecedented events. Risk assessment is an integral part of every business practice because such vulnerable incidents can make significant damage to the assets, existing processes, and environment. Organizations like Ingenero use these risk assessment methods to help businesses stay safe and strong.
Types of Risk Assessment Methodologies
There are several techniques to prioritize the risk associated with any business process. An effective risk assessment technique is essential to evaluate the possibility of the occurrence of any risk and its effect on the future.
Qualitative Risk Assessment
Qualitative risk assessment is best suited when detailed analysis is important for identifying the risk and taking preventive control measures. Keep It Super Simple (KISS) techniques keep the design procedure simple, avoiding complexity. The KISS technique follows a simple risk rating procedure based on severity as high, medium, or low.
Quantitative Risk Assessment
Quantitative risk assessment considers the quantitative rating for probabilistic assessment for finding the solution of business-related information. It quantifies the possible outcomes of business issues and estimates the probability of achieving specific business objectives. The main 6 types of quantitative risk assessment methods are as follows.
- Heuristic Methods
It is a problem-solving method that uses practical experience and knowledge to quickly fix the problem. This method is the experience-based technique that estimates the outcome by trial and error, historical data analysis, or simply guesswork.
- Three-Point Estimate
Three-point risk assessment is used in project management to give the most accurate and reliable estimates considering various project constraints. It estimates the risk, optimistic, most likely, and pessimistic values.
- Monte Carlo Analysis
Monte Carlo analysis is a mathematical technique for estimating the possible outcome of any uncertain event by analyzing historical data and expected future outcomes. It estimates the business cost and the expected time of completion of the project.
- Sensitivity Analysis
Sensitivity analysis is a technique of determining how a change in values impacts the outcome of any business processes. It helps to predict the risk that may have the highest effect on the business process.
- Failure Modes and Effects Analysis (FMEA)
It is a structured way of identifying the elements that cause a process to fail and determining the possible effects on the system. FMEA is effective when there is a need to evaluate existing and new processes for identifying bottlenecks.
- Fault Tree Analysis (FTA)
It is a deductive approach that analyzes the root issues of assets and determines the cause of the issue. It breaks down the root cause of any issue into its contributing factors and represents it through a graphical model. FTA is best suited for manufacturing facilities to find out the cause of system failure.
Risk assessment methodologies improve the process efficiency and help to achieve a security level. The quantitative or qualitative approach is applicable based on the problem faced by the business process. However, qualitative risk assessment is easy to apply and does not need any mathematical application. On the contrary, Quantitative risk assessment provides detailed information for decision-making.
