You can easily enhance your risk management with quantitative methods in the BIC GRC Solutions by conducting statistical calculations and using the Monte Carlo method. For many, quantification may come across as being too complex or challenging. The idea of spending days or even weeks delving into topics like simulation, Monte Carlo analysis, probability, distribution and random numbers is often an obstacle. Perhaps you too have considered taking the first steps towards risk quantification, but changed your mind because the work involved didn't seem to justify results that still lack the necessary transparency. Simulation with the BIC GRC Solutions can remedy these difficulties.
Common methods of calculating expected values are often fraught with error. The Monte Carlo method, in contrast, is a stochastic model that conducts a large number of random experiments to produce reliable results based on risk quantification. Risks are evaluated based on their probability of occurrence, distribution functions and extent of damage (e.g., three-point estimation). Simulations are used to help determine the aggregate risk (i.e., risk aggregation). Dependencies among individual risks can be taken into account. Results are then presented in various quantiles instead of absolute values. The BIC GRC Solutions (formerly risk2value) offer an integrated Monte Carlo tool for evaluating risks. By running targeted queries on risk information, you can conduct a solid analysis of the total risk situation at any time. Additionally, you are enabled to map the entire risk management process down to a risk analysis and can provide management relevant, decision-making information for enterprise planning.
- Robust results on the total risk situation
- Visible effects on the company’s total risk portfolio
- Solid foundation for making decisions, taking actions and evaluating options
- Transparent display of correlations and effects
- List of most significant risks
- Incorporation of action budgets
- Analysis of worst-case scenarios
We have observed that purely qualitative evaluations no longer suffice for many companies. The trend is moving towards quantitative evaluations – mostly in preparation for using simulation methods. This trend has also been recognized by Gartner, which emphasizes the growing significance of quantitative methods.
IDW PS 340, the auditing standard of the German Institute for Public Auditors since 2021, requires quantitative methods for publicly traded companies. Experience suggests that it will also have a spillover effect on smaller companies in the future. At the core of the new auditing standard is a legally binding examination of the early warning system by the auditor. IDW PS 340 incorporates the following topics:
Emphasis on the company's obligations regarding its ability to aggregate and bear risks
Clarification of the analysis of net risk and risk controls as examples of the basic elements to be checked in the early warning system
Details on the basic elements of an early warning system based on those developed for installing and examining risk management and compliance systems
The emphasis here lies on the points regarding risk-bearing ability, risk aggregation and the analysis of net risk. These requirements force companies to view risks in a quantitative manner. Calculating the aggregate risk and its effects on risk-bearing capacity are only feasible with quantitative methods such as the Monte Carlo simulation.
Gear up your risk management and fulfill the latest IDW PS 340 requirements with the BIC GRC Solutions. Read our white paper for more information.