Quantitative measurements of risk

If you accept the argument that risk matters and that it affects how managers and investors make decisions, it follows logically that measuring risk is a critical first step toward managing it.

Quantitative measures of risk must combine the two quantitative components of risk: the probability of the risk occurring and the size of the impact of the risk occurring.

Measure of impact

The selected measure or measures of impact is critical for the risk manager to make risk management strategies. It could be a case of illness, which could be further stratified into various levels of illness and be translated into an economic impact or some social impact measure, such as quality-adjusted life years (QALY).

Measure of risk

The risk measure, the probability and impact components, together with attendant uncertainties are involved in the description of the risk.

Watch the video and then summarise what you have learned.