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Defining Risk And Risk Metrics Against Risk Measurement

Jan 16, 2008
Every single endeavor no matter how simple or small always has a degree of risk attached to it. Risk always has to be quantified in one way or another in order for the institution to know what exactly they are getting themselves into. Risk can include several factors like: Monetary costs or Potential Losses, Time invested, the Movement of the Market as a whole, as well as a few others. No company or institution should move forward without first analyzing what their moves would cost them.

Knowing the risks associated with a decision is important before making something final. Without a study of the risks, it would be like walking across a busy street blindfolded. In general, the foreseen results of the endeavor should outweigh the perceived risks, if not, then the company can either choose to go ahead and hope for a positive outcome or they can choose to cancel the project all together. Once a company has the idea of the risks of the projects that they choose to be involved in, measures can then be taken to improve and protect a company against these risks.

In the process of quantifying risk, there are two categories that generally stand out; they are Risk Measurement and Risk Metrics. These two things are often interchangeably confused, which should not be the case. Risk Measurement and Risk Metrics are two complete different processes. Risk Measurement is the process by which risk is measured and Risk Metrics is the value attached to the measured Risk. These two items have to be fully understood in order to have a proper understanding of the risk report presented for a project.

The following example will help define Risk Measurement apart from Risk Metrics. When a person wishes to know how much an item weighs, he then weighs the object in order to get a corresponding numerical value. The process of weighing something is the process of measure or measurement. The corresponding unit that is attached to resulting value be it pounds, kilos or tons is referred to the Metric Value. The same goes with Risk Measurement and Risk Metrics. The process by which a risk is measured is referred to as the process of Risk Measurement, while the unit corresponding to the resulting value is a Risk Metric.

Customer response is a way by which risk is measured. The Risk Metrics used to quantify this could include positive and negative responses given by a focus group for a certain product. A negative result of the Focus Group established to measure Risk and customer response may mean that the product is not ready for the market and needs more time in development. If the results are positive, then it can be taken as a go signal to release the product.

Knowledge of how the Risk Report is achieved is extremely important when the risk associated with a certain project is great or dubiously small. It is also important to note the process by which the report is achieved especially if it hinders the progress of a certain project.
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