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What Is Qualitative Risk Management?

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  • Written By: Jim B.
  • Edited By: M. C. Hughes
  • Last Modified Date: 04 November 2016
  • Copyright Protected:
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    Conjecture Corporation
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Qualitative risk management is the process by which companies and businesses identify, assess, and attempt to eliminate potential threats to their operations and assets. This is done through qualitative methods, which are based on evaluation of past experience with business operations. The process also seeks to identify the risks that are most realistically harmful and the ones that can do the most monetary damages to a company. Companies can use qualitative risk management to assign resources to potential problem areas and work on both preventative and corrective measures for those areas.

Risk management is an important skill that must be cultivated by successful companies and their managers. For big businesses, millions of dollars can be at stake should some unforeseen event cause significant damage to a company or even halt or delay its operations. Since that is the case, risk managers must develop a set of tools to both prepare for risk and, if possible, prevent it. One of the tools they may utilize is qualitative risk management.

It is not uncommon for qualitative risk management to be compared to quantitative management, which is the other main style of risk analysis available to managers. Quantitative risk management attempts to put a numerical value on every aspect of the process. For example, the risk of something occurring is assigned a percentage, as is the monetary damage that would result from that unfortunate event.

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By contrast, qualitative risk management takes a different approach. The process is just as thorough, although it is less concerned with hard numbers. Whereas a quantitative approach might lead risk managers to believe that some negative event has a 50 percent chance of happening, a qualitative approach might label such a threat as “medium.” Although it is a broader approach, it might have some advantages on quantitative analysis in that it allows for more reasoning and thought to enter into the process.

When undertaking qualitative risk management, it is crucial to identify legitimate risks first, separating them from risks that are not likely occur. Once that is done, those risks must be characterized in terms of the likelihood of them happening and the damage they would do. At that point, all that is left is for risk managers to work on preventative measures to stop potential threats. They must also be sure to devise measures to correct problems that cannot be stopped.

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