Alexandria University.

Faculty of Engineering.
Naval Architecture & Marine Engineering Dept.
Marine Risks

Risk Analysis

Supervisors:
Dr./ Amany
, Eng./ sammar

Student Name: Student ID:

Fatma Wasim Helal 18011237

October 19, 2023

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Table of contents

 Introduction ……………………………………………...3
 Types of Risk Analysis ………………………………….3
 Qualitative vs. Quantitative risk analysis ………………..4
 How to Perform a Risk Analysis? ……………………….5
 Advantages and Disadvantages of Risk Analysis ……….7
 Marine Risk Analysis ……………………………………8
 Conclusion ……………………………………………….8

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Introduction

Risk analysis is the process of identifying and analyzing potential future events
that may adversely impact a company. A company performs risk analysis to
better understand what may occur, the financial implications of that event
occurring, and what steps it can take to mitigate or eliminate that risk.

Types of Risk Analysis

1- Quantitative Risk Analysis: -

Quantitative risk analysis involves the use of numerical data and

statistical models to estimate the probability and potential impact of risks.

This type of risk analysis provides a more objective and precise

assessment of risk, allowing for better-informed decision-making and risk
management.

2- Qualitative Risk Analysis: -

Qualitative risk analysis, on the other hand, relies on expert judgment,

experience, and subjective assessments to evaluate and prioritize risks.

This approach is particularly useful when numerical data is limited or

unavailable, or when the risks being assessed are complex and difficult to
quantify.

3- Scenario-Based Risk Analysis: -

Scenario-based risk analysis involves the development of hypothetical

scenarios that represent different potential outcomes or risk events.

By evaluating the potential impact of each scenario, investors and wealth

managers can better understand the range of possible outcomes and
develop strategies to manage or mitigate the associated risks.

4- Historical Risk Analysis: -

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 Historical risk analysis examines past data and events to identify patterns
and trends that may help predict future risks.

This type of risk analysis can provide valuable insights into the potential
impact of similar events or conditions on current investments and
financial plans.

Qualitative vs. Quantitative risk analysis

Basis
Qualitative risk analysis Quantitative risk analysis

Concept It is a subjective approach, It is objective approach

and primary objective is to that uses verified data &
identify the severity of statistical tools to analyze
risks. the risk and its impact.
How is it performed? ranks the risks on a scale considers risks closer to 1
of 0 to 1 to calculate the
consequences of risks.

What it does? assesses the likeliness of uses numerical calculations

risk to inform the team and to determine the risk and
the risk that needs to be its impact.
addressed first.
Complexity More complex as no tools Less complex as tools are
to assist. available to assist.

Time consuming More time consuming. less time consuming.

When to perform at the start of every new when they have loads of
project. data on the risk and its
impact.

Ease of use Easy to use as no challenging to use.

calculation is involved.

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 Suitability for All kinds of projects. complex projects.
Projects

Volume of Risk considers all the risks. considers only the risks
that qualitative risk
analysis marks as
important.
Steps - Identify Risks - Identify the Purpose,
- Classify Risks Scope, Method
- Control Risks - Prepare the Data, Tools
- Monitor Business Risks & People Needed
- Apply Chosen Method to
the Data Gathered
- Record & Store All
Results

How to Perform a Risk Analysis?

Though there are different types of risk analysis, many have overlapping steps
and objectives. Each company may also choose to add or change the steps
below, but these six steps outline the most common process of performing a risk
analysis.
Step #1: Identify Risks
The first step in many types of risk analysis to is to make a list of potential
risks you may encounter. These may be internal threats that arise from within a
company, though most risks will be external that occur from outside forces. It
is important to incorporate many different members of a company for this
brainstorming session as different departments may have different perspectives
and inputs.
A company may have already addressed the major risks of the company
through a SWOT analysis. Although a SWOT analysis may prove to be a
launching point for further discussion, risk analysis often addresses a specific
question while SWOT analysis are often broader. Some risks may be listed on
both, but a risk analysis should be more specific when trying to address a
specific problem.
Step #2: Identify Uncertainty

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The primary concern of risk analysis is to identify troublesome areas for a
company. Most often, the riskiest aspects may be the areas that are undefined.
Therefore, a critical aspect of risk analysis is to understand how each potential
risk has uncertainty and to quantify the range of risk that uncertainty may hold.
Consider the example of a product recall of defective products after they have
been shipped. A company may not know how many units were defective, so it
may project different scenarios where either a partial or full product recall is
performed. The company may also run various scenarios on how to resolve the
issue with customers (i.e. a low, medium, or high engagement solution.

Step #3: Estimate Impact

Most often, the goal of a risk analysis is to better understand how risk will
financially impact a company. This is usually calculated as the risk value,
which is the probability of an event happening multiplied by the cost of the
event.
For example, in the example above, the company may assess that there is a 1%
chance a product defection occurs. If the event were to occur, it would cost the
company $100 million. In this example, the risk value of the defective product
would be assigned $1 million. The important piece to remember here is
management's ability to prioritize avoiding potentially devastating results. For
example, if the company above only yielded $40 million of sales each year, a
single defect product that could ruin brand image and customer trust may put
the company out of business. Even though this example led to a risk value of
only $1 million, the company may choose to prioritize addressing this due to
the higher stake's nature of the risk.

Step #4: Build Analysis Model (s)

The inputs from above are often fed into an analysis model. The analysis model
will take all available pieces of data and information, and the model will
attempt to yield different outcomes, probabilities, and financial projections of
what may occur. In more advanced situations, scenario analysis or simulations
can determine an average outcome value that can be used to quantify the
average instance of an event occurring.

Step #5: Analyze Results

With the model run and the data available to be reviewed, it's time to analyze
the results. Management often takes the information and determines the best

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course of action by comparing the likelihood of risk, projected financial impact,
and model simulations. Management may also request to see different scenarios
run for different risks based on different variables or inputs.
Step #6: Implement Solutions
After management has digested the information, it is time to put a plan in
action. Sometimes, the plan is to do nothing; in risk acceptance strategies, a
company has decided it will not change course as it makes most financial sense
to simply live with the risk of something happening and dealing with it after it
occurs. In other cases, management may want to reduce or eliminate the risk.

Advantages and Disadvantages of Risk Analysis

 Advantages of Risk Analysis

Risk analysis allows companies to make informed decisions and plan for
contingencies before bad things happen. Not all risks may materialize, but it is
important for a company to understand what may occur so it can at least choose
to make plans ahead of time to avoid potential losses.
Risk analysis also helps quantify risk, as management may not know the
financial impact of something happening. In some cases, the information may
help companies avoid unprofitable projects. In other cases, the information may
help put plans in motion that reduce the likelihood of something happen that
would have caused financial stress on a company.
Risk analysis may detect early warning signs of potentially catastrophic events.
For example, risk analysis may identify that customer information is not being
adequately secured. In this example, risk analysis can lead to better processes,
stronger documentation, more robust internal controls, and risk mitigation.

 Disadvantages of Risk Analysis

Risk is a probabilistic measure and so can never tell you for sure what your
precise risk exposure is at a given time, only what the distribution of possible
losses is likely to be if and when they occur. There are also no standard methods
for calculating and analyzing risk, and even VaR can have several different

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ways of approaching the task. Risk is often assumed to occur using normal
distribution probabilities, which in reality rarely occur and cannot account for
extreme or "black swan" events.
The financial crisis of 2008, for example, exposed these problems as relatively
benign VaR calculations that greatly understated the potential occurrence of risk
events posed by portfolios of subprime mortgages.
Risk magnitude was also underestimated, which resulted in extreme leverage
ratios within subprime portfolios. As a result, the underestimations of
occurrence and risk magnitude left institutions unable to cover billions of
dollars in losses as subprime mortgage values collapsed.

Marine Risk Analysis

- Sources of risk to marine systems include equipment failure, external events,

human error, and institutional error.

- Equipment failure, the most readily recognized hazard on ships, may be

categorized as either independent failure, such as the loss of steering
because of the failure of a power steering pump or common-cause failure,
such as the loss of propulsion and steering resulting from a total loss of
electrical power to the ship.
- Risk from external events arises from hazards such as collisions with other
ships, sea state; wind, and ice or other weather factors.
- Humans provide another source of risk to marine systems when they lack
skill, are excessively fatigued, or commit sabotage.
- Institutional failure creates risks from poor management including
inadequate training, poor communications, and low morale.

Conclusion

Risk analysis is the process of identifying risk, analyzing results, and devising a
plan. Risk analysis may be qualitative or quantitative, and there are different
types of risk analysis for various situations. risk analysis is important as it
guides company decision-making. Consider the example of a company
considering whether to move forward with a project.