Quantitative risk analysis: how not to lose in business?

Today, in a large number of draft business plans, even if there is a corresponding section containing an analytical aspect, the problem is narrowed only to the analysis of financial or banking risks and does not reflect the full range of risks. However, specialists need to widely use both qualitative and quantitative risk analysis. More details on the second type.

Quantitative analysis is applied only to the risks that are qualified in the process of qualitative analysis as those using which have a significant impact on the achievement of the set goals. When carrying out such an analysis, the effect of events of this kind should be evaluated with the assignment of a certain digital rating.

Quantitative analysis may sometimes not be required when developing effective risk response measures. The most common among the often used analytical methods are the following:

- Sensitivity study, which involves determining the reflection of the degree of uncertainty of each individual element of a business project when making other elements of the base value;

- consideration of the projected monetary value by multiplying each value by the probability of its occurrence, the results obtained are summarized.

The quantitative analysis of any investment project determines the numerical value of the values of certain risks. It is based on the territory of probabilities, the theory of operations research and mathematical statistics.

Quantitative analysis is carried out in the case of two conditions: a basic calculation of the business project and a full-fledged qualitative analysis. Its task is to numerically measure the influence of some changes in factors on the dynamics of the criteria that show the effectiveness of the project.

Often, such methods of quantitative analysis of business projects are used:

- analysis of such performance indicators as net discounted income and the rate of return, as well as the profitability index;

- adjustment of the discount rate ;

- Monte Carlo method (second name - simulation simulation);

- Building a decision tree.

All of the above analytical methods of business projects are based on probabilistic approaches.

Quantitative and qualitative analysis and their effectiveness directly depends on the requirements for the final indicators (results), the information base and the level of reliability of planning. So, for example, for small projects, effective methods are: analysis of discount rate adjustment and sensitivity. For large projects, it is simulation simulation and construction of probability distribution curves. If the result of the project depends on the adoption of certain decisions, it is necessary to build a decision tree.

Thus, the methods of analysis should be applied in a complex manner using the simplest versions of them at the evaluation stage, and more complex and requiring additional data - with the resulting justification of business projects.