Quantitative risk assessment uses numerical data to calculate risk levels. This approach shifts from subjective ratings to statistical modeling, allowing organizations to calculate exact financial exposures.
Defining Common Probability Distributions
Risk models use different probability distributions to match the nature of different risks:
[Normal Distribution]      ---> Used for predictable risks with symmetrical variations
[Lognormal Distribution]   ---> Used for financial losses with high-impact tail risks
[Uniform Distribution]     ---> Used when outcomes have an equal chance of occurring

Key Quantitative Formulas
To calculate expected financial exposures, risk managers use the Expected Monetary Value (EMV) formula. To ensure this formula pastes cleanly into text editors without relying on complex formatting plug-ins, it is expressed below in standard alphanumeric text format:
EMV = P * I

Where:
  • EMV = Expected Monetary Value (expressed as a specific currency value)
  • P = Probability of Occurrence (expressed as a percentage between 0% and 100%)
  • I = Financial Impact of Occurrence (expressed as a specific currency value)

 
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