What is the difference between qualitative and quantitative risk analysis?

The distinction between qualitative and quantitative risk analysis is rooted in their approach to evaluating risk. Qualitative risk analysis relies on subjective judgment and expert opinions to assess risks based on their characteristics, likelihood, and potential impact. This method is often used when precise numerical data is not available or when the focus is on understanding the nature of risks in a more descriptive manner. It helps organizations prioritize risks based on their significance and allows for the categorization of risks into various levels of concern.

On the other hand, quantitative risk analysis utilizes numerical data to measure risks objectively. This approach involves statistical methods, calculations, and models to quantify risks in terms of potential dollar losses, probabilities, and other measurable metrics. By providing a numerical framework, quantitative analysis allows organizations to evaluate risk in a more structured and precise manner, often leading to formulated risk management strategies based on clear financial implications.

This understanding highlights how qualitative methods are valuable for gaining insights into risks through discussion and consensus, while quantitative methods offer the rigor of data-driven analysis, thus making the first choice the correct representation of the differences between these two analysis types.