Quantifying Risks with Spreadsheet Models

After you identify risks, a model can help you quantify them. Quantifying a risk means determining the chances that the risk will occur and the cost if it does, to help you decide whether a risk is worth taking. For example, if there is a 25% chance of running over schedule, costing you $100 out of the own pocket, that might be a risk you are willing to take. But if you have a 5% chance of running over schedule, knowing that there is a $10,000 penalty, you might be less willing to take that risk.

Finding the certainty of achieving a particular result is often the goal of model analysis. Risk analysis takes a model and sees what effect changing different values has on the bottom line. Risk analysis can:

Help end "analysis paralysis" and contribute to better decision-making by quickly examining all possible scenarios
Identify which variables most affect the bottom-line forecast
Expose the uncertainty in a model, leading to a better communication of risk