1. What Is Risk Calculation?

Risk calculation is a fundamental concept in risk management that quantifies potential losses or negative outcomes by multiplying the probability of an event occurring by the impact or severity of that event.

2. How Does The Calculator Work?

The calculator uses the basic risk formula:

Where:

• \( Risk \) — Risk value (unitless)
• \( Probability \) — Likelihood of event occurring (0-1 scale)
• \( Impact \) — Severity or consequence of the event

Explanation: This formula provides a quantitative measure of risk by combining the chance of occurrence with the potential negative consequences.

3. Importance Of Risk Assessment

Details: Risk assessment is crucial for decision-making in business, finance, project management, safety planning, and healthcare. It helps prioritize risks and allocate resources effectively for mitigation strategies.

4. Using The Calculator

Tips: Enter probability as a decimal between 0 and 1 (e.g., 0.25 for 25% chance). Impact should be scaled appropriately for your context (typically 1-10 or monetary value). Both values must be valid non-negative numbers.

5. Frequently Asked Questions (FAQ)

Q1: What scale should I use for impact?
A: Impact can be scaled from 1-10 for qualitative assessment or use actual monetary values for financial risk. Ensure consistency across all risk assessments.

Q2: How accurate is this simple risk formula?
A: While basic, it provides a good starting point. More complex models may include additional factors like exposure, vulnerability, and mitigation effectiveness.

Q3: What do different risk values indicate?
A: Higher values indicate greater risk. Organizations typically set risk thresholds (e.g., low: 0-0.2, medium: 0.2-0.5, high: 0.5-1.0) based on their risk appetite.

Q4: Can this be used for positive risks (opportunities)?
A: Yes, the same formula applies but impact would represent potential benefits rather than negative consequences.

Q5: What are the limitations of this approach?
A: It assumes independence between probability and impact, and may not capture complex interdependencies or extreme events (black swans).