Analytics have been present in the world of risk management for decades. Many experts in the field have noticed a recent growing interest in the application of analytics. An article from Risk & Compliance Journal notes that it can be difficult to separate what we really need and what hype says we need when it comes to risk analytics. The article continues to say how you measure and quantify risk:
There is no exact science for measuring risk. But with analytics, you can build measurement parameters that can help you establish and examine likely risk scenarios. From there, it’s easier to understand the potential impact of a risk – and start planning around it. Along the way, analytics can help establish a baseline of data for measuring risk across the organization by pulling together many strands of risk into one unified system.
Traditional analytics are quite helpful in understanding recurring or past events. When we are looking toward the future, the modeling approach is more beneficial. Risk modeling takes information from things that have already happened and uses that information to paint a picture of what is likely to happen in the future. The article notes that, with more abstract risks, modeling may be of good use.
Furthermore, modeling is beneficial when “an organization is grappling with massive complexity.” Understandably, this will occur more often with larger businesses. When modeling is used well, it will lead to smarter overall decisions. However, it is important to note that risk modeling is in no way a replacement for risk analytics. It is simply another one of many tools. Whether you are looking toward the future or trying to find answers in the past, balancing analytics and modeling is the best method of success.