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Computer Science Question.edited 1 1

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Computer Science
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University of the Cumberlands
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Running head: RISK MODELLING
1
Risk Modelling
Name
Course
University

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RISK MODELLING
2
Concept of Risk Modeling
Risk modeling is a comprehensive process that is used to quantify potential risks. The
risk model thus denotes a mathematical representation of the system, which commonly
incorporates probability distribution. The model deals with the data that is input, and processes it
quantitatively so that it can come up with estimates or data that can be used in decision making
in the organization. The development of the model uses historical data that is relevant to the
organization together with elicitation from experts in the area, the risk event, and the potential
level of severity (Pienaar, 2019). This is very beneficial to the organization as it helps reduce the
number of uncalculated decisions that will take place therefore ensuring success.
According to Kenton and Scott (2020), risk modeling aims at quantifying the potential
risks that an organization could face as a result of various challenges. It also looks at the results
that will occur if the wrong modeling is used or the correct modeling is used but used in the
wrong way increasing the errors in decision making at the organization. For example, in the
financial industry, risk modeling for credit risks enables the organization to quantify the losses
that they are likely to face due to market risks, debtor's bankruptcy, the fluctuation of a market
portfolio negatively, and so forth.
This helps the institutions because they rely on credit to function among other market
factors that must be carefully studied to avoid making any decisions that will lead to losses; these
are decisions based on their activities on a daily basis. Further, for an organization engaged in the
production of various products, risk modeling could look at operational risks and seek to
quantify the losses that the company could experience as a result of a breakdown in one of its
processes.

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Running head: RISK MODELLING 1 Risk Modelling Name Course University RISK MODELLING 2 Concept of Risk Modeling Risk modeling is a comprehensive process that is used to quantify potential risks. The risk model thus denotes a mathematical representation of the system, which commonly incorporates probability distribution. The model deals with the data that is input, and processes it quantitatively so that it can come up with estimates or data that can be used in decision making in the organization. The development of the model uses historical data that is relevant to the organization together with elicitation from experts in the area, the risk event, and the potential level of severity (Pienaar, 2019). This is very beneficial to the organization as it helps reduce the number of uncalculated decisions that will take place therefore ensuring success. According to Kenton and Scott (2020), risk modeling aims at quantifying the potential risks that an organization could face as a result of various challenges. It also looks at the results that will occur if the wrong modeling is used or the correct modeling is used but used in the wrong way increasing the errors in decision making at the organization. For example, in the financial industry, risk modeling for credit risks enables the organization to quantify the losses that they are likely to face due to market risks, debtor's bankruptcy, the fluctuation of a market portfolio negatively, and so forth. This helps the institutions ...
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