Risk Quantification System

The Risk Quantification System (RQS) utilizes a complex array of statistical operations and the EquityNet Knowledge Base to compute the probability of success for each unique enterprise. From the enterprise characterization generated by ECS, 30 or more endogenous (e.g., management experience) and exogenous (e.g., economic indicators) enterprise risk factors are quantified and considered by RQS. These enterprise factors are compared to empirical risk correlations in the Knowledge Base that correspond to the industry sector type and maturity of the enterprise (i.e., enterprise character).





Based on the value of an enterprise risk factor and its corresponding Knowledge Base correlation, RQS determines the probability of success associated with each individual enterprise risk factor. These individual probabilities are aggregated into 10 categories of risk and further into a total probability of success. This weighted aggregation is based on the known statistical significance of each Knowledge Base correlation and any investor user customization to these default weights. The probability of success quantifies systematic and unsystematic enterprise risk (i.e., uncertainty) and provides a standardized mechanism for direct comparison of disparate enterprises.

RQS Risk Categories:

  • Investment / Debt Duration
  • Capitalization & Financial Condition
  • Accounting & Financial Control
  • Management Experience
  • Management Education
  • Planning
  • Production & Personnel
  • Market Size & Growth
  • Competitive Rivalry & Protection
  • External Economic Environment
 Customizable Risk Settings

Specific investor risk preferences can be incorporated in RQS through adjustment of its Risk Settings. For each of twelve primary industry sectors (i.e., enterprise classification), users can adjust the Risk Setting for any of the 10 RQS Risk Categories. This customization capability maximizes the utility of RQS for investors by allowing them to emphasize or de-emphasize categories of enterprise risk in the RQS computation system.