Risk measurement tools

Save my name, email, and website in this browser for the next time I comment. Sign in. Forgot your password? Get help. Privacy Policy. Password recovery. Invensis Learning Blog. Please enter your comment! Please enter your name here. You have entered an incorrect email address! Related Articles. Top 10 Scrum Tools in January 28, January 29, What is Service Level Management?

Go to mobile version. Do you have the required skills for the role of a Project Manager? This process of Risk Identification results in creation of Risk Register.

A Risk Register is a living document that is updated regularly throughout the life cycle of the project. It becomes a part of project documents and is included in the historical records that are used for future projects. The risk register includes:. Some of the tools that can be used for qualitative risk analysis include:.

The matrix helps in identifying those risks which require an immediate response. The matrix may be customized according to the needs of the project. Most companies do have a standardized template for this matrix and project managers could leverage those templates as well. Use of standardized matrix makes the matrix list more repeatable between projects. Data is collated for the identified risks. The project manager will try to find the precision of the data that must be analyzed for completing the qualitative analysis of risks.

For each risk, in Risk Data Quality Assessment, the project manager needs to determine:. The next step of Qualitative risk analysis is to analyze the probability and impact of risks in Perform Quantitative Risk. It indicates how much the current return is deviating from its expected historical normal returns.

For example, a stock that has high standard deviation experiences higher volatility, and therefore, a higher level of risk is associated with the stock. For those interested only in potential losses while ignoring possible gains, the semi-deviation essentially only looks at the standard deviations to the downside. The Sharpe ratio measures performance as adjusted by the associated risks. This is done by removing the rate of return on a risk-free investment, such as a U. Treasury Bond, from the experienced rate of return.

A variation of the Sharpe ratio is the Sortino ratio , which removes the effects of upward price movements on standard deviation to focus on the distribution of returns that are below the target or required return. The Sortino ratio also replaces the risk-free rate with the required return in the numerator of the formula, making the formula the return of the portfolio less the required return, divided by the distribution of returns below the target or required return.

Beta is a measure of an investment's volatility and risk as compared to the overall market. The goal of the Treynor ratio is to determine whether an investor is being compensated for taking additional risk above the inherent risk of the market. Beta is another common measure of risk. Beta measures the amount of systematic risk an individual security or an industrial sector has relative to the whole stock market.

The market has a beta of 1, and it can be used to gauge the risk of a security. If a security's beta is equal to 1, the security's price moves in time step with the market. A security with a beta greater than 1 indicates that it is more volatile than the market. Conversely, if a security's beta is less than 1, it indicates that the security is less volatile than the market.

For example, suppose a security's beta is 1. In theory, the security is 50 percent more volatile than the market. Value at Risk VaR is a statistical measure used to assess the level of risk associated with a portfolio or company. The VaR measures the maximum potential loss with a degree of confidence for a specified period. Conditional value at risk CVaR is another risk measure used to assess the tail risk of an investment. Used as an extension to the VaR, the CVaR assesses the likelihood, with a certain degree of confidence, that there will be a break in the VaR; it seeks to assess what happens to investment beyond its maximum loss threshold.

This measure is more sensitive to events that happen in the tail end of a distribution —the tail risk. R-squared is a statistical measure that represents the percentage of a fund portfolio or a security's movements that can be explained by movements in a benchmark index. For fixed-income securities and bond funds, the benchmark is the U. Treasury Bill. RiskNav incorporates an administrative capability that allows the chart's probability and consequence ranges to be customized.

Clicking on a cell provides a detailed list of the risks in that cell. The All Red , All Yellow, and All Green icons at the top of the chart can be used to list risks in all cells of a particular color. Risk Matrix is a software application that can help identify, prioritize, and manage key risks on a program.

Although the process and application were developed for use by a specific sponsor, these principles can be applied to most government acquisition projects. See Figure 3. Although Risk Matrix is available for public release, support is limited to downloadable online documentation. Many commercial tools are available to support program risk management efforts. The government most commonly uses these risk management tools:. Multiple major government contractors have developed in-house risk management applications.

Many applications are comparable to available MITRE and commercial tools and effectively support program risk management. Many smaller programs use Microsoft Excel or Access customized risk management tools. Some customized solutions meet the tool selection criteria outlined earlier. This is important when considering a customized solution that meets the needs of the program being supported. Fit the tool to the process or assessment needed.