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.
There are two distinct types of risk tools identified by their approach: market-level tools using the
capital asset pricing model (CAP-M) and component-level tools with
probabilistic risk assessment
Probabilistic risk assessment (PRA) is a systematic and comprehensive methodology to evaluate risks associated with a complex engineered technological entity (such as an airliner or a nuclear power plant) or the effects of stressors on the environm ...
(PRA). Market-level tools use market forces to make risk decisions between securities. Component-level tools use the
functions of probability and impact of individual risks to make decisions between resource allocations.
ISO/IEC 31010 ISO/IEC 31010 is a standard concerning risk management codified by The International Organization for Standardization and The International Electrotechnical Commission (IEC). The full name of the standard is ISO.IEC 31010:2009 – Risk management â ...
(Risk assessment techniques) has a detailed but non-exhaustive list of tools and techniques available for assessing risk.
Market-level (CAP-M)
CAP-M uses market or economic statistics and
assumptions to determine the appropriate required
rate of return
In finance, return is a profit on an investment. It comprises any change in value of the investment, and/or cash flows (or securities, or other investments) which the investor receives from that investment, such as interest payments, coupons, cas ...
of an
asset
In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can ...
, given that asset's non-
diversifiable risk.
Component-level (PRA)
Probabilistic risk assessment
Probabilistic risk assessment (PRA) is a systematic and comprehensive methodology to evaluate risks associated with a complex engineered technological entity (such as an airliner or a nuclear power plant) or the effects of stressors on the environm ...
is often used in
project risk management Within project management, risk management refers to activities for minimizing project risks, and thereby ensuring that a project is completed within time and budget, as well as fulfilling its goals.
Definition of risk and risk management
Risk ma ...
. These tools are applications of PRA and allow planners to explicitly address uncertainty by identifying and generating metrics, parameterizing, prioritizing, and developing responses, and tracking risk from components, tasks or costs. PRA, also called Likelihood-Consequence or Probability-Impact, is based upon single-point estimates of probability of occurrence, initiating event frequency, and recovery success (e.g., human intervention) of a specific consequence (e.g., cost or schedule delay).
Notable PRA tools and techniques
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Event chain methodology
Event chain methodology is a network analysis technique that is focused on identifying and managing events and relationship between them (event chains) that affect project schedules. It is an uncertainty modeling schedule technique. Event chain me ...
– A method of managing risk and uncertainties affecting project schedules
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Risk register
A risk register (PRINCE2) is a document used as a risk management tool and to fulfill regulatory compliance acting as a repository for all risks identified and includes additional information about each risk, e.g., nature of the risk, reference an ...
– A project planning and organizational risk assessment tool. It is often referred to as a Risk Log.
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Systems Analysis Programs for Hands-on Integrated Reliability Evaluations (SAPHIRE) – A probabilistic safety and reliability engineering assessment software tool.
See also
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ISO 31000
ISO 31000 is a family of standards relating to risk management codified by the International Organization for Standardization. ISO 31000:2018 provides principles and generic guidelines on managing risks that could be negative faced by organizatio ...
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Peren–Clement index The Peren–Clement index is a method of country-specific risk analysis for businesses engaged in international trade and direct investment. This instrument provides a guideline when deciding which foreign markets offer the possibility of addition ...
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Problematic integration theory
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Project Management Body of Knowledge
References
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Risk management in business