One of the more important set of tasks that an organization carries out is clearly

quantifying business risk. This helps drive key decision making throughout the

company across key functional areas like finance, marketing, operational and
others. Quantifying business risk allows management to implement proper risk
management guidelines and to effectively prioritize and deploy their resources. A
key element of the risk quantification process is risk assessment, which involves
the determination of the risks surrounding a business.
Difficulty:
 
Moderately Challenging
Instructions
1.

o 1
Determine the financial risk involved in your business. To quantify this risk you
will need to lay out how much money is needed and what needs to be created in
terms of cash flow to meet the company's financial obligations. Specific numbers
need to be created. For instance, the XYZ Company will need to generate a
$120,000 per month in order to satisfy all their financial obligations and to break
even. Attaching figures clearly quantifies what has to happen financially or risk
losing money or burdening shareholders with more financial risk by using debt in
addition to equity financing. This shows management the risk that the company
will have if they do not create adequate cash flow to meet its operating expenses.

o 2
Quantify the company's market risk. This is where you explicitly state the impact
on the company's revenues and profits if they lost market share to their
competitors. To thoroughly be able to quantify this particular business risk
requires an extensive competitive analysis. In addition, quantify the risk if the
overall demand in the company's market space declines due to economic
reasons. Attach specific numbers to specific percentage declines to help
management visualize this business risk.

o 3
Account for political and country risk exposure. To properly quantify this type of
business risk, identify the variety of risks of doing business in a particular
country. For instance, you must consider political risks, exchange rate risks,
economic risks and sovereign risk, which is the business risk of capital being put
in the deep freeze due to government action or the defaulting of loans by a
 country without having any recourse. Quantify this type of business risk by
putting numbers on each of one of these obstacles to help management plan
accordingly.

o 4
Deal with and quantify systematic risk for your business. This type of business
risk is one that impacts markets but cannot be avoided through diversification.
These business risks manifest themselves through things like economic
recession, interest rates and global conflict. This type of quantification process of
attaching numbers to these unforeseen adverse events helps management put in
a disaster recovery plan, if the worst possible scenario unfolds.

Read more: How to Quantify Business Risk |

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