The techniques to rate risks are well established. However, the language they use can create problems.
Many organisations use qualitative definitions of likelihood and impact such as:
However, research suggests that people understand the terms differently. In one study individuals interpreted the probability implied by the phrase “Very Likely” to mean anything from 43% to 99%, and “Unlikely” to mean anything from 8% to 66%.
Consequently, it can be helpful to quantify the Likelihood and Impact of risks and outline the assumptions being made. See the Tatton Hill Academy Case Study, for example.
Sources of information
- examine past records
- draw on relevant experience
- look at published literature on the risk
- conduct market research
- use statistical models
- use experts in a particular area of risk to make judgements
It can be helpful to get different perspectives on the likelihood and impact of a risk across an organisation. These can then be averaged to come up with a single set of numbers.