1. What is Risk Calculation?

Risk calculation is a fundamental concept in risk management that combines the probability of an event occurring (likelihood) with the magnitude of its consequences (severity) to determine the overall risk level.

2. How Does the Calculator Work?

The calculator uses the basic risk equation:

Where:

• \( Likelihood \) — Probability of occurrence (0 to 1)
• \( Severity \) — Impact magnitude (numeric scale)

Explanation: The equation provides a simple quantitative measure of risk by multiplying the chance of something happening by how bad it would be if it did happen.

3. Importance of Risk Assessment

Details: Risk calculation helps prioritize risks, allocate resources effectively, and make informed decisions about risk mitigation strategies.

4. Using the Calculator

Tips: Enter likelihood as a decimal between 0 and 1 (where 0 is impossible and 1 is certain). Severity can be on any numeric scale (higher numbers indicate more severe consequences).

5. Frequently Asked Questions (FAQ)

Q1: What scales can I use for severity?
A: Any numeric scale can be used (e.g., 1-5, 1-10, or actual monetary values), but be consistent in your application.

Q2: How precise should likelihood values be?
A: Likelihood is often estimated. Use historical data when available, or expert judgment calibrated to your specific context.

Q3: What are typical risk thresholds?
A: Thresholds vary by organization and context. Common practice is to establish risk tolerance levels (e.g., low/medium/high) based on calculated values.

Q4: Can this be used for qualitative risk assessment?
A: While the calculation is quantitative, the inputs can be derived from qualitative assessments (e.g., converting "high probability" to 0.7).

Q5: What are limitations of this simple model?
A: It doesn't account for risk correlations, secondary effects, or uncertainty in the estimates. More complex models may be needed for sophisticated analyses.