Question

In: Accounting

How can an organization determine a risk score?

How can an organization determine a risk score?

Solutions

Expert Solution

An organization can determine its risk score through Risk assessment matrix where risks are placed on the matrix based on two criteria.

1. Likelihood- Probablity of a risk or the occurence of the disaster- On Y axis

2. Cosequencies- Severity of the Impact or the extent of damage caused by the risk- On X axis.

where Risk= Probility x Impact

I. Likelihood of occurence- Based on the likelihood , the risks are classified under following categories-

1. Definite(Scale 3)- if risk is more than 80% likely to increase problems.

2. LIkely( Scale 2)- if risks have 60%-80% chances of occurence.

3. Unlikely( Scale 1)- if risks have less than 10% chance of occurence.

II. Consequences- Risks under this are classified as -

1. Trivial( Scale 1)- if risks are negligile amount of damage.

2. Minor( Scale 2)- if risks result in some damage, but extent of damage is not too signigicant.

3. Major( scale 3) - if risks can lead to a great amount of loss as critical.

4. Catastropic( scale 4) - if risks can make the project completely unproductive and unfruitful.


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