Risk analysis may be performed as a two-stage process with qualitative analysis performed first as a lower cost initial screen, followed by more quantitative analysis of the most significant risks identified in the first stage, if the risks are suitable for quantitative analysis. Both qualitative and quantitative analysis methods have advantages and disadvantages. A risk manager should be aware and adopt the method best suited to the risk being analysed and the capabilities of the organisation.
Common qualitative methods Interviews Cross-functional workshops Surveys Benchmarking Scenario analysis • Cross-functional interviews, surveys and workshops are preferred to ensure the full effects of risks are captured across organizational silos • Benchmarking other organizations may require adjusting the likelihood or impact for the size and scope of your organization to improve relevance • Surveys may have low response rate and quality of understanding may vary across respondents. Workshops should be used in conjunction with surveys to improve information depth and quality • Scenarios are conducted in strategic planning and are also useful for assessing risks and tying them back to strategic objectives 6 4
The Delphi Technique explained 6 5 What it is The Delphi Technique is a structured survey method, that comprises a systematic and iterative survey of opinions drawn from a panel of experts. Why it is useful The Delphi Technique helps reduce bias, encourage dialogue between experts and speeds consensus, and reduces the risk that any one person from having undue influence on the opinion of the group. How it works Experts answer questionnaires in two or more rounds. After each round, a facilitator provides an anonymised summary of the experts' forecasts from the previous round as well as the reasons they provided for their judgments. Thus, experts are encouraged to revise their earlier answers in light of the replies of other members of their panel. The process is stopped after a predefined stop criterion (e.g. number of rounds, achievement of consensus, stability of results) and the mean or median scores of the final rounds determine the results.
Cash Flow at Risk (CFaR) defined (refer COSO) 6 6 Cash Flow at Risk is a quantitative risk measure built on a causal model where specific risk factors drive future uncertainty of key financial cash flow or earnings objectives. Each risk factor is modelled in detail and incorporated into an overall model of the firm’s cash flows or earnings. Unlike simple budgeting or extrapolating past experiences, CFaR gives insight into the potential variability of future cash flows and earnings.
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- risk principles