Advantages and Disadvantages of Quantitative and Qualitative Methods of Risk Analysis

Risk can be defined in financial terms as a chance or a possibility that any outcome will differ from an expected outcome or any return. It also includes the possibility of losing some or all an original investment value. Generally, risk is assessed by taking into consideration historical behaviour and outcome involved. There is various method involved or risk analysis which includes quantitative and qualitative method Both the above -mentioned risk analysis methods possess advantage, disadvantages of its own. At the same it has similarity and differences involved between the two. Disadvantage of quantitative method of risk analysis are 1. The dependency on too much on the scope of accuracy of de fined scale of measurement 2. The result relates to analysis may not be so much particular and it may be very much confusing too 3. The same is also enriched in qualitative description. 4. The analysis which is conducted through the application of quantitative meth od of risk analysis is more expensive which demands greater experience and advanced tools. Advantages of Quantitative method of risk analysis: 1. Through the help of quantitative method of risk assessment, more proper risk image can be obtained. 2. Cast and be nefit analysis can be done during selection of protections. 3. It also describes the risk quantitatively by number usage for impacts and probability, instead of involved ambiguous terms such as high or low. 4. It also helps to assess the combined effect of risk together on objectives, rather than treating each individual risk together. 5. It also provides consistency in analysis, as the output and operation of a simulation model is not dependant person who run the analysis and is not subject to their preconception a nd bias. 6. All the involved targets are presented realistically, as a wise possible outcome rather than as a single point. Advantages of qualitative method of risk analysis: 1. It identifies the threat or any prevailing opportunities and how much certain or li kely it is to happen, and the proper impact if they do. 2. Qualitative risk analysis usually happens first at intervals. It becomes very much easy for risk managers to draw on data to properly assess the specific risk in more detailed form . 3. Very simple assess ment form, no as such training is required, as the same does not rely on any complicated tool or software the dependency is not on risk occurrence frequency. 4. Risk classification is also done on basis of likelihood and impact of same. It makes it very much easy to ascertain which risk an organization is required to focus on the ones which comes into the highest likelihood and impact categories. Disadvantages involved of Qualitative method of risk analysis are: 1. Cost benefit analysis is also very much difficult. 2. No determination of probabilities and results on numerical basis. Difference between qualitative and quantitative risk analysis are as follows: 1. Qualitative is risk level based while the other is project level based. 2. Qualitative risk analysis i s very much quick and very easy to perform while the other is very much time consuming 3. Qualitative risk analysis, no special requirement of software or any tools while the other may required a specialized tool into it.