There are two methods often used to assess business risks, quantitative and qualitative. According to research, most businesses utilize the quantitative assessment model in order to identify and categorize probable problems with their business practices. A quantitative risk assessment approach means that numbers are used to calculate and predict hazards. Each hazard is then prioritized according to the level of their risk value. The higher the risk value, the higher it is in the priority totem pole.
On the other hand, a qualitative risk assessment uses characteristics of each scenario to determine a course of action. Unlike the quantitative approach, the qualitative methodology of risk assessment can be subjective and require more work than the former.
Crunching Numbers of Risk
In order to arrive at the value of risk (R), two components -loss (L) and probability (p) – are calculated in order to arrive at a final numerical value. Loss (L) represent the quantity of loss that is incurred in the event of an accident. The value of (p) or probability refers to the likelihood of a scenario to take place. The product value of (R) represents an objective assessment of potential risks.
Quantitative assessments are often used in complex situations which sometimes include the potential loss of life, broken machinery, and environmental consequences.
Success and Losses Based on Tested and Quantified Statistics
Despite its obvious advantages, quantitative risk assessment is not without its critics. Barry Commoner and Bryan Wynne criticized the reductive approach because it fails to capture the differentiation available in qualitative risk assessment. These detractors attest that these numbers cannot fully describe hazard scenarios as well because they remove the human element.
Although these critics have a point, a qualitative study would be long and expensive. Statistics provide enough breadth and definition to evaluate potential hazards in the workplace. In scenarios wherein there are clear patterns, quantitative analysis trumps the tedious and subjective nature of qualitative risk assessment.
Quantitative risk assessments are not absolute, despite appearances. The quantities attributed to loss and probability are not entirely fixed or certain. With larger values, there is a high risk of arriving at a completely wrong answer. Still, with the right data and calculation, predicting what could happen and how much it costs is a gamble any business should take.
The quantitative method assigns a value to signify “risk,” yet hazards are not equivalent to one another. In a situation where different scenarios come up with the same risk value such as a scenario in which loss is considered low and probability, high, versus a high loss and low probability, one or the other would be taken as a priority over the other. Businesses are still required to conduct a feasibility study to ascertain which hazard should require immediate action. More often than not, business choose the scenario in which loss is the most minimal overall.
Quantitative risk assessments present the facts in tangible manner. The numerical value to risk means that, likewise, solutions can be quantified as well. By using an equation to determine probability of failure and success, business owners and investors are no longer rely on a trial-and-error method which could incur more losses should it fail.
Low-Cost High-Reward Investment
Implementing safety precautions at work should be at an overall low-cost and high-reward situation. By using numerical data to determine which course of action is the most beneficial, business can get ahead of the risk game and actually win. In this case winning means minimal losses and increase in business profitability.
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