1. What is the Risk Equation?

The Risk Equation calculates potential risk for decision-making by multiplying the likelihood of an event by its potential impact. This fundamental risk assessment tool helps quantify and prioritize risks.

2. How Does the Calculator Work?

The calculator uses the simple risk equation:

Where:

• \( Likelihood \) — Probability of occurrence (0-1 scale)
• \( Impact \) — Magnitude of consequence (arbitrary scale)
• \( Risk \) — Resulting risk score (dimensionless)

Explanation: The equation provides a quantitative measure of risk by combining probability and impact into a single score.

3. Importance of Risk Calculation

Details: Risk quantification is essential for effective risk management, allowing comparison of different risks and informed decision-making about mitigation strategies.

4. Using the Calculator

Tips: Enter likelihood as a value between 0 (impossible) and 1 (certain). Impact can be any positive number representing your scale of consequences (e.g., 1-10, monetary value, etc.).

5. Frequently Asked Questions (FAQ)

Q1: What scale should I use for impact?
A: You can use any consistent scale (1-10, monetary value, etc.). The key is to apply the same scale across comparable risks.

Q2: How precise should likelihood estimates be?
A: Use the best available data. For uncertain estimates, consider using ranges or confidence intervals.

Q3: What's considered a "high" risk score?
A: This depends on your impact scale. Typically, risks are categorized into low/medium/high based on your organization's risk appetite.

Q4: Can I use this for qualitative risks?
A: The calculator requires numerical inputs. For qualitative risks, first convert them to numerical scales.

Q5: How often should risk assessments be updated?
A: Regularly, especially when circumstances change or new information becomes available.