Monday, February 13, 2012

Risk Probability and Impact

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The concept of Risk Probability and Impact is the fundamental building block on which Project Risk Management is raised. In this article, we will try to understand what is risk probability and what is risk impact.

Risk Probability

Risk Probability (sometimes known as likelihood) describes the potential for the risk event occurring. The probability of a risk occurring can range anywhere between 0% and 100% or it can be expressed as a number between 0 to 1. But, it can neither be 0% nor be 100%. Can you see why not?

If the risk probability value is 100%, then it is certain to occur; and as such, it defeats the definition of risk, an uncertain event or condition that may or may not occur. It cannot also be 0% for the same reason, as it means it is certain not to occur.

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Risk Impact

Risk Impact describes the effects or consequences the project will experience if the risk event occurs. The impact may be in terms of money, time, organization's reputation, loss of business, injury to people, damage to property and so on.

Probability and impact scales can be defined in terms of relative or ordinal (High, Medium, Low), linear or cordinal (1, 2, 3, 4, 5) or non-linear (1, 2, 4, 8, 16).

1 comment:

  1. Risk Impact describes all the effects of money, time, organization's reputation, loss of business, injury to people, damage to property and so on. Management of all such risk probability and wealth management are helping for occurring.

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