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What is a Risk Value?

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A risk value is an estimate of the cost of a risk that is calculated by multiplying probability by impact.


At its most basic, a risk value is a simple multiplication of an estimate for probability of the risk and the cost of its impact.
risk = probability × impact


A project costs $100,000 and has a 15% chance of failing. The cost of project risk can be estimated as:
risk = 100,000 × 0.15 = $15,000


A more accurate measure discounts risk to present value. If a building has a fire in 100 years, the damages can be discounted to the present value of the costs. This requires breaking out probability by time period and applying a discount rate to determine the current value of costs.

Probability Distributions

A more accurate measure represents risk as a probability distribution as opposed to a single probability. For example, car insurance may calculate risks using a smooth probability distribution that gives a probability for each dollar amount of damage.


A risk value involves forward looking estimates that may turn out to be inaccurate. As such they are considered a forecast.
Risk value is not to be confused with value at risk, an investing risk management measure.
Overview: Risk Value
Risk Measure
An estimate of the cost of a risk.
Commonly used for strategy, decision making, planning and pricing.
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