For companies and organizations, the risk is calculated by the equation: Risk = Probability x Impact. This means that the total risk level is the probability of an unfavorable event multiplied by the potential impact or loss suffered from the event. How to calculate risk probability and impact matrix is covered in more detail on this article below, evaluating the common steps in projects and stages to help you learn how risk calculation is performed in management. Coversion of the risk cost is done by reporting impact in dollars, you can estimate risk and easily compare one risk factor with another.
How to calculate risk probability and impact matrix
Step 1: Use Logic
Firstly, look at your problem in terms of the big picture. Then, take a few steps back and pretend to be a bystander who is not emotionally and actively connected to the situation. Thereafter, make sure it is put as simply as possible.
The total number of subscriber shares fell by 10% in the past month, from 150 active subscribers to 120.
- Of the 30 customers who left, 10 are new customers while 20 are old customers.
- 10 out of 30 are highly profitable customers, with a high price to revenue ratio
- Losing those 15 customers equals a 5% loss in profits.
Step 2: Decide an Impact Score
Then determine the numerical equivalent of the impact – the magnitude of the negative change that will (or may) occur as a result of this problem.
Let us assume that 10 out of 30 clients are very difficult and may not be ideal clients.
Financial analysis at this point to determine profit margins can indicate whether these problems will continue to impact sales. According to project management course if you are sure that this change will not cause major long-term problems, then you can easily choose impact level 3:
- Insignificant – the risk of having minimal damage or long-term effects (least impact)
- Marginal – risk can cause small losses but the small overall effect
- Serious – Risk may result in significant loss, injury, or damage
- Basic – Risk of causing significant loss, injury, or damage
- Catastrophic – Risk of dealing massive damage and long-term effects (biggest impact).
Step 3: Check probability
You have to check the possibility of this happening again. As a result of not having not fully identified the reasons behind the departure of 10% of the customers, more customers are highly likely to follow suit and exit the company. Without additional information at your disposal, you must always assume that this risk is quite high and as a result, you should choose the 5th level – the highest probability level:
- Unlikely — not expected to occur (the lowest Probability)
- Remote — not expected, but possible
- Occasional — likely to occur intermittently
- Certain — expected to occur eventually
- Frequent — definitely going to happen (the highest Probability)
Step 4. Multiply the Score to Get the Answer
Now, take the result of 10 and the probability result of 15 and multiply them: 10 x 15 = 150 this is how to calculate risk probability and impact matrix.
Project management articles
- Five Ways to Manage Risk
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- Scope of The Project Example
- Functions of monitoring and evaluation
- Project Management Team Roles
- Constraints Of A Project
- The Elements Of The Project Triangle
- Types Of Stakeholders In A Project
- What Is Involved In Risk Matrix?
- 3 Types Of Project Risk
- Five Stages Of Project Life Cycle
- Importance Of Project Scope
- Similaries and distinction between objective and goals