Question

Explain how risk analysis is used to estimate profits

Answer 1

Risk Analysis is the systematic study of uncertainities and risks we encounter in business, engineering, public policy and many other areas. Risk analysts seek to identify the risks faced by an institution or business unit, understand how and when they arise and estimate its impact on profits of an organization. Risk managers start with risk analysis, then seek to take action that will mitigate the risk or hedge the risks and maximize the profits of the organization, often computing measures such as Value at Risk (VaR), and ensure that they adequate capital to maintain solvency in the organization. There are risk several model to minimize the risk and estimate the approximate profits in future period.