Risk Analysis Matrix- Why is it a critical tool for assessing and managing risks?
The term ‘risk’ is defined as the probability of the occurrence of an event multiplied by its negative impact on business processes. A risk analysis matrix is an essential supply chain management tool that enables businesses to track and prioritize risks in order to develop an effective risk management strategy. It also provides a quick view of the probable risk factors gauged in terms of the likelihood of its occurrence or the severity of its consequences.
Risk Analysis Methods
Globally, risk analysis methods follow a systematic approach that helps identify possible threats to gauge the severity of their impact. Though several risk assessment methods exist, the most commonly adopted methods are briefly classified into two groups – Quantitative Methods and Qualitative Methods.
The risk analysis experts at SpendEdge prefer using qualitative risk analysis methods in the initial stages of the risk identification process. This process is comparable to creating a risk inventor, including the compilation of the risks and the collection of data related to the risk factors which are subject to protection. However, there are some principles to bear in mind while evaluating and examining the extent to which each risk factor has to be dealt with. Here’s a brief description of the two most commonly used risk analysis methods:
- Qualitative methods: This method is commonly used for critical business decision making. It can be used when the identified risk factors are not catastrophic.
- Quantitative methods: Quantitative risk analysis methods enable businesses to assign values to the risks based on the probability of occurrence.
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