Risk quantification is the second step in the ERM process cycle, and has three major activities:
- Calculate Baseline ERM Metrics
SimErgy will develop a practical ERM model to calculate the baseline ERM metrics. The basis for quantifying risk exposure is the extent to which the baseline ERM metrics are impacted by the risk scenarios.
- Quantify Individual Risk Exposures
SimErgy will conduct risk scenario development exercises based on an adaptation of the Failure Modes and Effects Analysis (FMEA) approach. This involves interviews with internal subject matter experts to develop key risk scenarios, which include the financial impacts of each risk scenario. SimErgy will further develop the ERM model for individual risk quantification, and use the risk scenario information as inputs to the ERM model to quantify the individual risk exposures in terms of their impact to the baseline ERM metrics.
SimErgy uses a pioneering approach – called the value-based ERM approach – that quantifies all types of risks, including strategic, operational, and financial risks.
- Quantify Enterprise Risk Exposure
Enterprise risk exposure is the aggregate measure of risk exposure at the enterprise level. SimErgy will further develop the ERM model to handle multiple risk scenarios occurring simultaneously, develop simulations, and quantify enterprise risk exposure in terms of a range of risk exposure thresholds and the associated likelihoods of crossing these thresholds.