Risk comparison method, assumptions, and issues

Communicating the likelihood and consequence of potential risks is critical in today´s business environment. A comparison of the likelihood of several different potential events can provide insight to management about factors that, if left unchecked, may cause an unwanted scenario. One method utilized to calculate the likelihood of a risk being realized is the “One-out-of-X” measure. This high-level measure is very effective for comparing different risk scenarios; however, it is important that the risk analyst provides additional information to management regarding the confidence in this value, what factors significantly influence it, and how other scenarios compare. It is also important that the team establish a risk management system that includes likelihood levels that will aid in deciding which problem areas to try and solve first. The risk management system should include likelihood levels that define where mitigation must be implemented. This system should also establish lower risk levels where mitigation can either be delayed or never implemented. The methodology outlined in this paper provides the basis for a robust risk management system.