Measuring Risk
Organizations must be able to manage risk, but in order to do so, companies must be able to measure it. The terminology used to measure risks include risk, tolerance, and sensitivity as well as assessment, measure, and perceptions.
Using the databases of the CSU Online Library as resources, prepare an essay of at least two pages outlining how risk measures have developed and evolved over time. Your essay should also outline qualitative and quantitative measures of risk and discuss how cultures, structures, and process impact the risk management process.
Sample Solution
Risk measures have evolved over time from simplistic approaches based on intuition and experience to sophisticated mathematical models that quantify potential risks. Risk, as a measure of the likelihood of an undesired outcome, is typically assessed in two ways: qualitatively and quantitatively. Qualitative risk assessment involves using subjective criteria such as experience or intuition to evaluate scenarios and make decisions about how best to manage them (Hoffman 2013). Quantitative risk assessment uses more structured methods such as stochastic analysis, Monte Carlo simulations or scenario modeling to calculate the probability of losses or damages resulting from particular events (Usher-Patel & Ford 2019).
Cultural factors can also play a role in how organizations assess and manage risk. For example, some cultures may be more prone to taking risks than others due to differences in attitudes towards financial loss or physical harm (Chan & Liu 2018). Similarly, corporate structures can dictate which stimuli lead executives to take certain actions when facing risky scenarios – for instance, some companies may prefer short-term returns while others might prioritize long-term growth (Usher-Patel & Ford 2019). Finally, processes can impact the way that organizations approach risk management by providing clarity around procedures for assessing threats and making decisions about how best to respond (Hoffman 2013).
In sum, there are many different factors that impact how organizations measure and manage risk. As technology continues to advance rapidly over time, it will become increasingly important for companies worldwide to develop effective strategies for assessing potential risks and responding quickly with appropriate mitigation plans.
