Risk impact refers to the potential consequences or losses that an organization or individual may incur as a result of an identified risk. It is an essential element of risk analysis, and is typically estimated by considering the likelihood of a risk occurring, as well as the potential consequences of the risk if it does occur.
Developing an estimate of probability and impact is a standard practice in risk analysis, and it is often done using a variety of techniques, such as probability analysis, impact analysis, risk assessment tools, risk analysis techniques, and risk management software. These techniques can help organizations and individuals to understand the potential impacts of different risks and to prioritize their efforts accordingly.
Risk impact is an important consideration in risk management, as it helps organizations and individuals to understand the potential costs associated with risks and to allocate resources more effectively to manage and mitigate those risks. By accurately assessing risk impact, organizations and individuals can make more informed decisions about the risks they are willing and able to take on, and develop strategies to minimize the potential consequences of those risks. The following are common types of impact.
Health & Safety
Safety or health risks related to a location, lifestyle, occupation or activity. For example, a risk assessment for a major earthquake typically includes estimates of casualties.
Quality of Life
Nations, cities, communities, organizations and individuals may base risk assessments on quality of life factors. For example, before purchasing a house an individual may consider the risk that an adjacent industrial property will pollute the air.
Risks to the environment such as estimates of potential damage to an ecosystem.
Financial impacts such as lost revenue, costs and expenses. Financial impacts may be modeled as a single estimate or a probability distribution.
Projects often estimate risk impact in terms of cost and time. For example, a project team may estimate the impact of technical risks in terms of delays to a schedule.
Risk impact can be viewed in terms of social factors such as reputation. For example, an airline might assess the risk of a practice such as overbooking in terms of customer satisfaction and brand value.