How We Calculate Risk

The formula used to calculate the Risk Score in Risk Radar is designed to provide a balanced, transparent, and intuitive way to assess risks. Let’s explore why this formula was chosen and how it works in a clear and approachable way.

1. The Formula

The Risk Score is calculated using the following formula:
Risk Score = (Sum of Weights / 9) * 10

• Sum of Weights: Each of the three risk factors (Likelihood, Impact, Difficulty) is assigned a weight based on the selected level:

  • Low/Minor/Easy = 1

  • Medium/Moderate = 2

  • High/Critical/Difficult = 3
    9: This is the maximum possible sum of weights (3 + 3 + 3).
    10: This scales the result to a range of 1–10, which is easy to interpret.

2. Why This Formula?

The formula was chosen for several key reasons:

a. Flexibility

The formula accounts for all possible combinations of answers (Likelihood, Impact, Difficulty) and translates them into a precise risk score. This ensures that every factor contributes proportionally to the final score.

b. Intuitive Scale

The 1–10 scale is universally understood and allows users to quickly interpret the risk level:

• 1–3.3: Low Risk (🟩 Green)

• 3.4–6.6: Medium Risk (🟨 Yellow)

• 6.7–10: High Risk (🟥 Red)

c. Balanced Weighting

Each factor is weighted differently to reflect its importance:

• Likelihood is given higher importance because it directly affects whether a risk will materialize.

• Impact is important but is balanced against Likelihood. For example, if the Likelihood is low, even a high Impact may not result in a high Risk Score.

• Difficulty adjusts the risk based on how easily the issue can be resolved. If fixing the issue is easy, the risk is reduced; if it’s difficult, the risk increases.

3. How the Formula Works

Let’s walk through how the Risk Score is calculated step by step, using an example to make it clear.

1. Assigning Weights
   Each of the three factors—Likelihood, Impact, and Difficulty—is assigned a weight based on the selected level:

   • Low/Minor/Easy = 1

   • Medium/Moderate/Medium = 2

   • High/Critical/Difficult = 3

   For instance, if you select:

   • Likelihood: Medium (2)

   • Impact: Moderate (2)

   • Difficulty: Easy (1)

2. Summing the Weights
   Next, you add up the weights for all three factors. In this example:

   • 2 (Likelihood) + 2 (Impact) + 1 (Difficulty) = 5

3. Normalizing to a 1–10 Scale
   To convert the sum into a Risk Score, divide it by 9 (the maximum possible sum of weights) and multiply by 10.

   • (5 / 9) * 10 = 5.55

4. Interpreting the Result
   The final score, 5.55, falls into the Medium Risk category (3.4–6.6). This means the task has a moderate level of risk, and it’s worth keeping an eye on it, though it doesn’t require immediate action.

4. Why Divide by 9 and Multiply by 10?

• Divide by 9: This converts the sum of weights into a fraction of the maximum possible risk (9). It ensures that the score is proportional to the total risk.

• Multiply by 10: This scales the fraction to a 1–10 range, which is more intuitive and easier to interpret than 0–9 scale.

5. Advantages of the Formula

• Accuracy: The formula ensures that all risk factors are considered proportionally, providing a precise assessment.

• Consistency: The same formula is applied to all tasks, ensuring uniformity in risk evaluation.

• User-Friendly: The 1–10 scale is easy to understand and communicate across teams.

• Adaptability: The formula can be adjusted if new risk factors or weights are introduced in the future.

6. Conclusion

The formula (Sum of Weights / 9) * 10 was chosen because it:

• Provides a flexible and accurate way to assess risks.

• Translates complex risk factors into a simple, intuitive scale.

• Ensures transparency and consistency in risk evaluation.

• Balances the importance of Likelihood, Impact, and Difficulty to reflect real-world risk scenarios.

This approach makes Risk Radar a powerful tool for identifying, assessing, and managing risks effectively.