In: Accounting
How can an organization determine a risk score?
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.