Risk Estimates

Risk Estimates

Risk Estimates Jonathan Poland

Risk estimates are predictions or projections of the likelihood and potential consequences of risks. They are used to inform risk management efforts, such as measuring risk exposure and identifying strategies for reducing or mitigating risks.

There are a variety of methods that organizations can use to estimate risks, including probability analysis, impact analysis, risk assessment tools, risk analysis techniques, and risk management software. These methods can help organizations to understand the potential impacts of risks, to prioritize risks based on their likelihood and potential impact, and to develop strategies for managing and mitigating risks.

Risk estimates are an important element of effective risk management, as they help organizations to better understand and manage the risks that they face. By accurately forecasting the probability and impact of risks, organizations can make more informed decisions and allocate resources more effectively to mitigate or reduce risks.


A single estimate of probability and impact based on historical comparisons and/or the opinions of subject matter experts. For example, a product development team estimates the risk that a product will fail on the market as a 20% chance of a $100,000 loss. The risk exposure calculation is an estimate of the probable cost of a risk. It isn’t an upper bound on risk.

Risk Exposure = 0.2 x 100,000 = $20,000

Probability-Impact Matrix

A single estimate of probability and impact is often overly simplistic as there may be many levels of potential impact, each with a separate probability of occurring. A more accurate risk estimate can often be obtained with a matrix of probabilities and impacts.

Probability Distribution

A more detailed risk estimate can be represented with a smooth curve that gives you a probability for every possible impact.

Parametric Estimates

Risk estimates that go beyond the educated guesses of subject matter experts to calculate risk probabilities and impacts using formulas or algorithms based on a number of parameters. Such calculations are industry and risk specific.

Reference Class Forecasting

Developing or validating risk estimates using data about historical losses that occurred with comparable strategies, operations or projects. For example, risk estimates for an infrastructure project based on a database of historical infrastructure projects of similar magnitude. If projects in your industry have a 20% failure rate and your risk estimate is 3%, you might be missing something.

Learn More
Technology Risk Jonathan Poland

Technology Risk

Technology risk refers to the risk that technology shortcomings may result in losses for a business. This can include the…

Quality Objectives Jonathan Poland

Quality Objectives

Quality objectives are specific, measurable targets that organizations set in order to improve the quality of their products or services.…

Data Quality Jonathan Poland

Data Quality

Data quality refers to the accuracy, completeness, and reliability of information used for various purposes within an organization. Ensuring high…

Decision Framing Jonathan Poland

Decision Framing

Decision framing refers to the way in which a choice or dilemma is presented or structured. This includes the language…

Idea Generation Jonathan Poland

Idea Generation

Idea generation is the process of generating new and original ideas. It is an essential component of the innovation process…

The Fundamentals of Business Mastery Jonathan Poland

The Fundamentals of Business Mastery

Overview Business comes down to just two areas: investments and deliverables. Leaders make investments in people, products that are delivered…

Cross Merchandising Jonathan Poland

Cross Merchandising

Cross merchandising is a retail strategy that involves placing related or complementary products in close proximity to each other in…

Impact Evaluation Jonathan Poland

Impact Evaluation

An impact evaluation is a study that measures the actual outcomes and consequences of a change. It takes into account…

What Is Analysis? Jonathan Poland

What Is Analysis?

Analysis is the process of breaking something down into its component parts in order to better understand it. This is…

Search →
content database

Search my thinking on business, finance,
and the capital markets or start below

Tactical Risk Jonathan Poland

Tactical Risk

Tactical risk refers to the potential for losses due to changes in business conditions in real-time. Tactics differ from strategy…

Program Risk Jonathan Poland

Program Risk

Program risk refers to the likelihood of a program failing to achieve its goals due to potential outcomes. This type…

Perfect Competition Jonathan Poland

Perfect Competition

Perfect competition is a theoretical market structure in which a large number of buyers and sellers participate and no single…

Risk Tolerance Jonathan Poland

Risk Tolerance

A risk is the possibility of an adverse event occurring, while a trigger is the root cause of that event.…

Liquidity Risk Jonathan Poland

Liquidity Risk

Liquidity risk is the risk that a financial institution or company will not be able to meet its financial obligations…

Types of Process Jonathan Poland

Types of Process

A process is a systematic, controlled, and repeatable way of working that is used to achieve specific goals or outcomes.…

Competitor Analysis Jonathan Poland

Competitor Analysis

Competitor analysis is the process of gathering and analyzing information about competitors in a market in order to understand their…

Call To Action Jonathan Poland

Call To Action

A call to action (CTA) is a phrase or statement that is used to encourage a specific response or action…

Internal Communication Jonathan Poland

Internal Communication

Internal communication is the exchange of information within an organization that is designed to help it achieve its goals. This…