How is quantitative risk analysis defined?

Quantitative risk analysis is a method that evaluates risk in numerical terms to provide a more empirical basis for decision-making. The formula that defines this analysis is the probability of loss multiplied by the value of loss. This approach allows organizations to understand the potential financial impact of various risks they may face.

By using this formula, organizations can prioritize risks based on their potential cost if they were to occur, enabling more effective allocation of resources towards risk management and mitigation strategies. This quantitative assessment is particularly valuable for decision-makers as it translates potential risks into concrete financial terms, making it easier to justify investments in risk management initiatives.

The other options do not accurately represent the formula used in quantitative risk analysis. They do not provide a direct relationship between the probability of loss and the value of loss as intended in this analysis framework. Understanding the correct definition is crucial for professionals involved in risk assessment and management, ensuring they can make informed decisions based on solid, quantifiable data.