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4 Types of Risk Exposure

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Risk exposure is an estimate of the probable costs of a risk or set of risks. This can be calculated for a strategy, program, project or initiative. There are four basic ways to calculate risk exposure:

Single Value

The basic calculation for risk exposure is based on an estimate of the probability of a risk and its impact.
risk exposure = probability × impact

For example, if there is a 20% chance of a product failing on the market and the impact will cost you $1 million.

risk exposure = 0.20 × $1,000,000 = $200,000
It should be noted that risk exposure as presented here isn't the maximum cost of the risk but the probable cost.


Many risks are too complex to model with a single estimate of probability and impact. In this case, a risk exposure can be measured with a matrix of discrete probabilities. For example, a product might have several different possible levels of failure on the market:
Products usually generate some revenue, even if they fail. As such, the estimate of $93,000 incorporates a range of possible failure levels.


Risk exposure can also be modeled as a continuous curve whereby a probability is given for every possible loss. For example, a product failure that can cost at most $200,000 can be modeled with a probability for every possible dollar amount such as a 0.0004% chance of a $10,000 loss and a 0.0003999% chance of a $10,001 loss.


Risk exposure can also measure the maximum impact of a risk regardless of probability. This makes sense where you want to limit the worst case.
Fire risk exposure related to the facility has been capped at the insurance deductible of $10,000 plus an estimated $40,000 in costs not covered by insurance.
Overview: Risk Exposure
Definition (1)
An estimate of the probable costs of a risk or set of risks for a period of time.
Definition (2)
An estimate of the maximum costs of a risk or set of risks for a period of time.
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