1. What is Risk Assessment?

Risk assessment is the process of identifying, analyzing, and evaluating potential risks to determine their likelihood and impact. It can be conducted using qualitative or quantitative methods to prioritize risks and inform decision-making processes.

2. How Does the Calculator Work?

The calculator uses the fundamental risk calculation formula:

Where:

• \( Probability \) — Likelihood of risk occurrence (0-1 scale)
• \( Impact \) — Severity of consequences (1-10 scale)
• \( Risk \) — Calculated risk score

Explanation: The formula multiplies the probability of an event occurring by the magnitude of its potential impact to generate a quantitative risk score that helps prioritize risks for management.

3. Importance of Risk Calculation

Details: Proper risk assessment enables organizations to allocate resources effectively, implement appropriate controls, and make informed decisions about risk mitigation strategies. It forms the foundation of risk management frameworks across various industries.

4. Using the Calculator

Tips: Enter probability as a decimal between 0 and 1 (e.g., 0.25 for 25% chance), impact on a scale of 1-10 where 1 is minimal impact and 10 is catastrophic impact, and select the appropriate assessment type for your analysis.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between qualitative and quantitative risk assessment?
A: Qualitative assessment uses descriptive scales (low/medium/high) while quantitative assessment uses numerical values and statistical methods to measure risk probabilities and impacts.

Q2: How should I determine probability values?
A: Use historical data, expert judgment, statistical analysis, or industry benchmarks. Probability can range from 0 (impossible) to 1 (certain).

Q3: What factors should I consider for impact assessment?
A: Consider financial loss, operational disruption, safety concerns, reputational damage, regulatory compliance issues, and environmental effects.

Q4: Are there limitations to this simple risk formula?
A: Yes, it doesn't account for risk correlations, multiple risk scenarios, or non-linear relationships. More complex models may be needed for comprehensive enterprise risk management.

Q5: How should risk scores be interpreted?
A: Scores below 2.5 indicate low risk, 2.5-5.0 medium risk, 5.0-7.5 high risk, and above 7.5 critical risk requiring immediate attention.