Risk analysis (business)

Last updated

Risk analysis is the process of identifying and assessing risks that may jeopardize an organization's success. It typically fits into a larger risk management framework.

Contents

Diligent risk analysis helps construct preventive measures to reduce the probability of incidents from occurring, as well as counter-measures to address incidents as they develop to minimize negative impacts on the organization.

A popular method to perform risk analysis on IT systems is called facilitated risk analysis process (FRAP).[ citation needed ]

Facilitated risk analysis process

FRAP analyzes one system, application or segment of business processes at a time.

FRAP assumes that additional efforts to develop precisely quantified risks are not cost-effective because:

After identifying and categorizing risks, a team identifies the controls that could mitigate the risk. The decision for what controls are needed lies with the business manager. The team's conclusions as to what risks exist and what controls needed are documented along with a related action plan for control implementation.

Three of the most important risks a software company faces are: unexpected changes in revenue, unexpected changes in costs from those budgeted and the amount of specialization of the software planned. Risks that affect revenues can be: unanticipated competition, privacy, intellectual property right problems, and unit sales that are less than forecast. Unexpected development costs also create the risk that can be in the form of more rework than anticipated, security holes, and privacy invasions. [1]

Narrow specialization of software with a large amount of research and development expenditures can lead to both business and technological risks since specialization does not necessarily lead to lower unit costs of software. [2] Combined with the decrease in the potential customer base, specialization risk can be significant for a software firm. After probabilities of scenarios have been calculated with risk analysis, the process of risk management can be applied to help manage the risk.

Methods like applied information economics add to and improve on risk analysis methods by introducing procedures to adjust subjective probabilities, compute the value of additional information and to use the results in part of a larger portfolio management problem.

See also

Related Research Articles

Management science is a wide and interdisciplinary study of solving complex problems and making strategic decisions as it pertains to institutions, corporations, governments and other types of organizational entities. It is closely related to management, economics, business, engineering, management consulting, and other fields. It uses various scientific research-based principles, strategies, and analytical methods including mathematical modeling, statistics and numerical algorithms and aims to improve an organization's ability to enact rational and accurate management decisions by arriving at optimal or near optimal solutions to complex decision problems.

<span class="mw-page-title-main">Risk management</span> Identification, evaluation and control of risks

Risk management is the identification, evaluation, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability or impact of unfortunate events or to maximize the realization of opportunities.

<span class="mw-page-title-main">Business plan</span> Formal written document containing the goals of a business

A business plan is a formal written document containing the goals of a business, the methods for attaining those goals, and the time-frame for the achievement of the goals. It also describes the nature of the business, background information on the organization, the organization's financial projections, and the strategies it intends to implement to achieve the stated targets. In its entirety, this document serves as a road-map that provides direction to the business.

Marketing research is the systematic gathering, recording, and analysis of qualitative and quantitative data about issues relating to marketing products and services. The goal is to identify and assess how changing elements of the marketing mix impacts customer behavior.

Marketing management is the strategic organizational discipline which focuses on the practical application of marketing orientation, techniques and methods inside enterprises and organizations and on the management of marketing resources and activities. Compare marketology, which Aghazadeh defines in terms of "recognizing, generating and disseminating market insight to ensure better market-related decisions".

Scenario planning, scenario thinking, scenario analysis, scenario prediction and the scenario method all describe a strategic planning method that some organizations use to make flexible long-term plans. It is in large part an adaptation and generalization of classic methods used by military intelligence.

Database marketing is a form of direct marketing that uses databases of customers or potential customers to generate personalized communications in order to promote a product or service for marketing purposes. The method of communication can be any addressable medium, as in direct marketing.

<span class="mw-page-title-main">Data management</span> Disciplines related to managing data as a resource

Data management comprises all disciplines related to handling data as a valuable resource, it is the practice of managing an organization's data so it can be analyzed for decision making.

An executive information system (EIS), also known as an executive support system (ESS), is a type of management support system that facilitates and supports senior executive information and decision-making needs. It provides easy access to internal and external information relevant to organizational goals. It is commonly considered a specialized form of decision support system (DSS).

<span class="mw-page-title-main">Business analyst</span> Person who analyses and documents a business

A business analyst (BA) is a person who processes, interprets and documents business processes, products, services and software through analysis of data.The role of a business analyst is to ensure business efficiency increases through their knowledge of both IT and business function.

Reliability engineering is a sub-discipline of systems engineering that emphasizes the ability of equipment to function without failure. Reliability is defined as the probability that a product, system, or service will perform its intended function adequately for a specified period of time, OR will operate in a defined environment without failure. Reliability is closely related to availability, which is typically described as the ability of a component or system to function at a specified moment or interval of time.

<span class="mw-page-title-main">Operations management</span> In business operations, controlling the process of production of goods

Operations management is concerned with designing and controlling the production of goods and services, ensuring that businesses are efficient in using resources to meet customer requirements.

Business analysis is a professional discipline focused on identifying business needs and determining solutions to business problems. Solutions may include a software-systems development component, process improvements, or organizational changes, and may involve extensive analysis, strategic planning and policy development. A person dedicated to carrying out these tasks within an organization is called a business analyst or BA.

A hazard analysis is one of many methods that may be used to assess risk. At its core, the process entails describing a system object that intends to conduct some activity. During the performance of that activity, an adverse event may be encountered that could cause or contribute to an occurrence. Finally, that occurrence will result in some outcome that may be measured in terms of the degree of loss or harm. This outcome may be measured on a continuous scale, such as an amount of monetary loss, or the outcomes may be categorized into various levels of severity.

Software project management is the process of planning and leading software projects. It is a sub-discipline of project management in which software projects are planned, implemented, monitored and controlled.

ISO/IEC 27005 "Information technology — Security techniques — Information security risk management" is an international standard published by the International Organization for Standardization (ISO) and the International Electrotechnical Commission (IEC) providing good practice guidance on managing risks to information. It is a core part of the ISO/IEC 27000-series of standards, commonly known as ISO27k.

A glossary of terms relating to project management and consulting.

<i>The Fat Tail</i> 2009 book by Ian Bremmer

The Fat Tail: The Power of Political Knowledge for Strategic Investing is a book written by political scientists Ian Bremmer and Preston Keat. Bremmer and Keat are the president and research director of Eurasia Group, a global political risk consultancy.

Risk management tools allow the uncertainty to be addressed by identifying and generating metrics, parameterizing, prioritizing, and developing responses, and tracking risk. These activities may be difficult to track without tools and techniques, documentation and information systems.

<span class="mw-page-title-main">IT risk management</span> Application of risk management methods to information technology in order to manage IT risk

IT risk management is the application of risk management methods to information technology in order to manage IT risk, i.e.:

References

  1. ↑ Messerschmitt, D. G. & C. Szyperski (May–June 2004). "Marketplace Issues in Software Planning and Design". IEEE Software. 21 (3): 62–70. CiteSeerX   10.1.1.57.9389 . doi:10.1109/MS.2004.1293074.
  2. ↑ Rao, P.M. & J. A. Klein (February 1994). "Growing importance of marketing strategies for the software industry". Industrial Marketing Management. 23 (1): 29–37. doi:10.1016/0019-8501(94)90024-8.

Further reading

This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.