Risk analysis is, quite simply, the process of quantifying risk, and then, using the probability an event occurs, calculating the economic effects and comparing that to a course of action (usually an expense) designed to prevent the event from occurring — assuming, of course, it is a negative event.

For an oversimplified example, if the risk of a power outage is .004 (.4 percent), and that power outage will cause a $10,000 loss, do we (or do we not) spend $2,000 on a four-hour battery backup?

Indeed, risk analysis gives us the tools to come to a yes/no decision regarding making that purchase. You may wish to do some research on probability distribution curves to help your effort.

But you’re not out of the woods quite yet. There is the chance that risk analysis can come back to bite you. Just like any other tool, improperly used, risk analysis can do more harm than good.