Introducing RiskLens Loss Exceedance Charts

December 6, 2019  Bryan Smith

Have you ever looked at the results in a RiskLens risk analysis and wondered what's the probability that a loss will hit the max? Or looked at the results and tried to answer how much risk you are comfortable with? If so the new Loss Exceedance Charts introduced in RiskLens 2.2.7 are your answer.

A Loss Exceedance Chart (LEC) is a way to visualize the probability of the loss exceeding a certain amount. Like the Loss Exposure Histogram chart, the LEC's visualize the results of applying Monte Carlo simulations to a FAIR risk analysis.

Reading a Loss Exceedance Chart

The x-axis plots the annualized loss exposure for the given risk scenario considered in the analysis. The y-axis plots the probability of a loss being greater than the intersection with the x-axis, from 0 to 100%.

The RiskLens platform calculates Probability of Loss from the results of the Monte Carlo simulations. It does this by analyzing the range of results and finding the percent of values that are greater than or equal to segments of the range.

Using Loss Exceedance Charts for Business Decisions

The chart above represents annualized loss exposure between $0 and $731K. As a decision maker, how do you know what to plan for? What can this data tell you? Loss Exceedance Charts guide you to decisions by asking how comfortable you are with loss.

Start asking questions such as, “What is the probability that the loss will be greater than $100K?” The LEC can be quickly used to see that the probability is 55%. Are you comfortable with a 50/50 probability of loss being greater than $100K? Maybe you are, but what about something bigger?

What about greater than $300K? You might not be comfortable with this large of an amount. The probability is 10%. Are you uncomfortable with a 1 in 10 possibility of losses being greater than $300K?

This process helps you determine your comfort level of loss, given a risk scenario. If you're not comfortable with the level and probability of loss, then you know it’s time to start addressing what risk mitigation techniques can help lower the exposure.

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