An important aspect of managing risk is performing risk assessments at regular intervals. Risk assessments are essentially a single point in time in your larger risk management process, and to ensure an accurate, responsive process, each assessment should be undertaken with precision and thorough planning.
Each assessment is an audit of your company’s threat landscape. They should examine if any new threats have developed since the previous assessment, if any old threats still linger, and what methods can be taken to mitigate these threats. In practice, there are two types of assessments you can implement to investigate your threat landscape: a qualitative risk assessment and a quantitative risk assessment.
Both work in different ways, but if executed correctly they can help you identify threats and respond to them in a timely manner, prepare your company for a potential worst case scenario, establish a proactive rather than reactive approach to threats and ultimately, save you money. No matter how you choose to utilize assessments in your process, you should understand the difference between a qualitative and quantitative risk assessment process and what benefits they possess.
Qualitative Risk Assessment
A qualitative risk assessment focuses on the probability of a threat occurring and how it will impact the company (such as financially, legally, in reputation, etc.). Risks are usually on an established scale that estimates probability (for instance: low, medium, high), and risks are also usually categorized based on the source of it or on the effect to the company.
How to Apply Qualitative Assessments to Your Risk Management Process
Qualitative risk assessments work best when they are based on the personal experiences of your subject matter experts. Because the accuracy of these kinds of assessments is dependent upon a subjective rating system, it’s important for assessors to have industry expertise, knowledge of your business including strengths, weaknesses and potential threats, and risk management experience.
The success of the process also depends on having a well-established and understood system for recording assessments and interpreting their results.
Opting to form your risk management strategy around qualitative assessments can have several benefits if you have the risk management infrastructure to support it. In fact, subjectivity in your assessments is not always a bad thing – it allows assessors to analyze your threat landscape based on their own wealth of knowledge and experiences. Of course, that does mean you must ensure you’re choosing the appropriate members of your organization to assess risk.
Probability ratings, however you choose to make them, can also be an easy and accurate method for quickly gaining an understanding of potential risks. Qualitative risk assessments give you more freedom to customize question and answer sets to yield the most enlightening responses from your experts.
You can also expand your probability ratings to add in more situational nuance. The qualitative risk assessment matrix (RAM), or your rating scales, can be project or area specific, meaning that from area to area, you can customize the risk management process to fit your goals.
Lastly, qualitative assessments tend to be the easiest to implement for companies. Through interviews or workshops, you can engage your experts to determine where the threats are and how to address them.
Rather than using numerical estimates, qualitative risk assessments work with descriptive and categorical treatments of information. From these assessments, you should gain a thorough characterization of risk and be able to define it in terms of the severity of its impact and the estimated likelihood of it actually happening.
By understanding how vulnerable you are to a risk, you can choose an appropriate risk mitigation strategy: risk avoidance, risk acceptance, risk reduction or risk transference. You can also use these results as an indicator of where you should focus your attention for further risk assessment.
A qualitative risk assessment should help you prioritize and manage risk better as well as utilize your time and resources more wisely. By using your qualitative RAM and categorization of risk impact and likelihood, you can determine which risks are the highest priority. However, these results must be analyzed with the same amount of subjectivity in which they were produced. Qualitative assessments lack a level of accuracy that must be understood going into the process; these are not objective, numerical data but opinions and judgements of those with knowledge of your company and the industry.
Quantitative Risk Assessment
Whereas qualitative risk assessments utilize knowledge and experience to determine risk probability, a quantitative risk assessment relies on objective, measurable data to provide insights into your risk management process.
How to Apply Quantitative Assessments to Your Risk Management Process
Quantitative assessments are particularly useful for a complex risk management process that involves looking at a large project or company area. It leads to more objective results by attaching numerical values, such as money or time, to the risk. By using historical data to determine the probability of a risk scenario occurring and numerical values such as money, time or lost assets to determine risk impact, a quantitative risk assessment provides an accurate reflection of your threat landscape.
Quantitative assessments require many data requirements to work as intended. For example to determine potential threats or hazards, an assessment may utilize risk scenarios that call for the value of assets to be determined and then how a risk may cause loss of value. Beyond just collecting data, a company needs risk management experts that are able to analyze and report the results appropriately.
A quantitative risk assessment gives you the data you need to accurately predict future outcomes or estimate the likelihood of meeting your targets. Along with this information, it strengthens your risk management strategy moving forward by communicating to you any contingency you need to properly address a risk to your satisfaction.
By basing the results on objective, numerical and measurable data, you won’t need to account for the window of uncertainty that qualitative assessments have. This gives you and other stakeholders more confidence in the outcome of assessments. Each risk will have a numerical value attached to the likelihood of its occurrence and the impact of its occurrence. This will paint a much clearer picture of your threat landscape and make it easier to determine the mitigation strategy that works best.
As long as the information you have is dependable, a quantitative risk assessment can create more realistic targets than a qualitative assessment. Whereas qualitative assessments depend on an estimated likelihood such as low, medium or high, using a data-driven approach yields more accurate, usable information.
The quality of the results in a quantitative assessment depends on the quality of the data used. As long as it is of a high standard, you can use this type of assessment to discover important factors concerning your risk. For instance, you can use data to predict the potential outcome of events, the impact a hazard occurring will have on assets or the sensitivity of a risk to a number of variables.
The results of quantitative assessments can be evaluated in order to choose a risk response that everyone has confidence in.
A quantitative risk assessment will deliver more accurate information. That’s not to say that qualitative assessments are not trustworthy. In fact, doing a qualitative assessment prior to a quantitative assessment will help you zero in on the areas you should give the highest priority in your risk management process.
However, a quantitative assessment, while the most accurate, can be impractical if you don’t have the infrastructure to obtain high quality data and perform analyses. An audit and risk management software can help stakeholders properly conduct qualitative or quantitative risk assessments and manage the entire process.
Manage Risk With ComplianceBridge
From risk identification to choosing the appropriate risk mitigation strategy, TotalCompliance Risk provides you with the tools you need to gain valuable insights about your risk. Quickly build assessments utilizing a variety of question types including multiple choice, yes/no, fill-in-the-blank or risk ratings. You can weigh questions for more accuracy and create conditional follow-up questions. By assigning different parts of your assessments to specific individuals, departments or groups, you can best leverage your subject matter experts and obtain data that has the highest level of dependability.
You can review responses in real-time as respondents submit and see all responses individually for in-depth reporting. TotalCompliance Risk allows you to export data for further analysis or presentation and provides you with a detailed overview of the entire risk management process. From creation of assessments, managing responses and analysis of results, our system has you covered.
Regardless of how you conduct your risk assessments, TotalCompliance Risk gives you a fast and reliable method for managing them. Learn how our automated system can lead you to a safer and more compliant workplace. Request a demo today!