Risk analysis is a process of determining the likelihood of the risk materializing and severity of a risk if it materialize.
It is very important in risk management. It helps in identifying treats and prioritizing controls. It is made up of two parts – The probability that the treat could materialize and the resultant negative consequences.
Types of Risk Analysis
There are two (2) types of risk analysis – Qualitative and Quantitative risk analysis.
Qualitative risk analysis
This type of risk analysis is based on subjective principles using a pre-established rating scale. Here, risk can be graded to be either high, medium or low. qualitative risk analysis produces subjective results because it gathers data from participants in the risk analysis process based on their perceptions of the probability of a risk and the risk’s likely consequences.
Quantitative risk analysis
The quantitative risk analysis numerically analyzes the probability of each risk and its consequences. It assign risk value to the risk level.
For example: If the probability that an accident will occur is 90% and the estimated cost of the accident is 500,000.
The risk value = 0.9 x 500,000
This risk value will be used to compare with the cost of control. If the risk value is lower than the cost of control then the risk may be accepted, but if it’s higher than the control cost, then it will be better to control the risk.
Risk analysis steps
Risk can be analysed following the steps below:
Identify the threat:
The first step is to identify what could go wrong. This threat could be human, procedural or natural. An incompetent worker is a threat, poor system of work is a threat, area susceptible to natural disaster also forms a threat. This physical threats combine with relevant information and legislation collectively helps in identifying the threat.
Analysis the threat:
This is used to determine the likelihood that the threat will materialize and the inherent consequence.
Develop risk management plan:
Based on the result of the risk identification and analysis, it is used to draw out control measures to either eliminate or mitigate the risk.
Implement the risk management plan:
Ensure that the risk management plan is communicated to the necessary authorities and fully implemented.
Monitor the risk:
Monitoring helps check if the identified risk has been properly controlled and also confirm the workability of the risk management plan. At this stage, the risk management plan can be reviewed if gaps are identified.