1. What Is Risk Calculation?

Risk calculation is a fundamental concept in economics and decision-making that helps quantify potential losses or negative outcomes. It involves assessing both the probability of an event occurring and the magnitude of its impact.

2. How Does The Risk Calculator Work?

The calculator uses the basic risk formula:

Where:

• \( Probability \) — Likelihood of event occurring (0-100%)
• \( Impact \) — Severity of consequences (scale 1-10)

Explanation: This formula provides a quantitative measure of risk by combining both the chance of occurrence and the potential severity of outcomes.

3. Importance Of Risk Assessment

Details: Proper risk assessment is crucial for informed decision-making, resource allocation, and developing effective mitigation strategies in business and economic contexts.

4. Using The Calculator

Tips: Enter probability as a percentage (0-100%) and impact on a scale of 1-10, where 1 represents minimal impact and 10 represents catastrophic impact.

5. Frequently Asked Questions (FAQ)

Q1: What constitutes a high risk score?
A: Generally, scores above 0.5 indicate significant risk that requires attention, while scores above 0.8 represent critical risks needing immediate action.

Q2: How should probability be estimated?
A: Probability can be estimated using historical data, expert opinion, statistical models, or a combination of these approaches.

Q3: What factors influence impact assessment?
A: Impact should consider financial losses, operational disruptions, reputational damage, regulatory consequences, and other relevant factors.

Q4: Are there limitations to this simple formula?
A: While useful for basic assessment, complex risks may require more sophisticated models that account for correlations between multiple risk factors.

Q5: How often should risk assessments be updated?
A: Risk assessments should be reviewed regularly and updated whenever there are significant changes in the business environment or new information becomes available.