Quantitative versus Qualitative Risk Factors

From Open Risk Manual

Quantitative versus Qualitative Risk Factors

The dichotomy denotes a frequent challenge in Risk Analysis where quantitative (hard, objective) evidence, information, data source must be combined or juxtaposed with qualitative (soft, subjective) information, insights or views.

Credit Risk Context

In Credit Decisioning (e.g by banks) both types of factors are considered and qualitative factors may overrule quantitative criteria.

Soft information is important

  • for the assessment of entrepreneurial and management ability
  • to substitute for the absence of hard data
  • to provide relevant context for business conditions that cannot be captured quantitatively


As standalone Qualitative Credit Rating

Issues and Challenges

  • Combining qualitative factors into an overall quantitative Credit Score
  • Disclosing to the borrower the reasons for a rejection