One of the most common methods of quantitative risk analysis is statistical, analytical, analogies and decision trees (graphs).
Statistical method
It is a method, the essence of which is based on the theory of probability of distribution of random variables. And this is widely used in cases where, when conducting quantitative analysis, the company has a significant amount of analytical and statistical information on the necessary elements of the analyzed system within a certain number of time periods. During the analysis, data relating to the effectiveness of the firm’s performance of the actions under consideration are used. When using this method, the degree of risk is expressed through the value of the standard deviation from the expected values.
The statistical method for determining project risk is used to calculate the expected duration of each activity and the project as a whole.
Analytical method
The application of the analytical method can be considered practical when it is possible to present it as several interdependent stages.
In the first stage, preparation for the analytical processing of information is carried out, that is, the definition of the key parameter for which the assessment of a particular business activity is carried out, the selection of factors affecting the activities of the company, and hence the key parameter, the calculation of the values of the key parameter at all stages of the production process.
In the second stage, the dependencies of the selected resulting indicators on the value of the initial parameters are graphically presented, and the analysis of the graphs provides a conclusion about the indicators that most affect this type of business activity.
In the third stage, the critical point of production or break-even zone is determined, which shows the minimum acceptable volume of sales to cover the costs of the company.
During the fourth stage, on the basis of the obtained critical values of key parameters and factors affecting them, possible ways to improve the efficiency and stability of the firm’s work are analyzed, and, consequently, ways to reduce the degree of risk determined by one of the previous methods.
Method of analogies
When analyzing the degree of risk of a certain direction of entrepreneurial activity using data on the development of the same and similar directions in the past, the method of analogies is used – if it is necessary to identify the degree of risk in any innovative direction of the firm’s activity when there is no strict basis for comparison, it is better to know the past experience, although not quite corresponding to modern conditions, than to know nothing.
When using analogs, databases and knowledge about risk factors are used. These databases are formed on the basis of materials from literary sources, search works, monitoring, surveys of specialists, etc. The obtained data are processed using the appropriate mathematical apparatus and computers to identify dependencies and to take into account the potential risk.
Decision tree
Modeling the choice of decisions under risk using a “decision tree” (graph) is one of the important methods of risk assessment. This method involves the graphical construction of nested decision options. And to ensure reliable business protection, you can contact Digital Uppercut (https://www.digitaluppercut.com/), which is located in Los Angeles.
