Risk

Risks

# What is a Risk Value?

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

## Calculation

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

## Example

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

## Discounting

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.

## Notes

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 Type Risk Measure Definition An estimate of the cost of a risk. Use Commonly used for strategy, decision making, planning and pricing. Related Concepts

## Risk Management

This is the complete list of articles we have written about risk management.
Acceptable Risk
Calculated Risk
Contingency Plan
Contingency Planning
Disaster Preparedness
Economic Risk
ERM
Financial Risk
Innovation Risk
Insurance
Investing Risk
Moment Of Risk
Plan Template
Political Risk
Positive Risk
Project Risk
Reputational Risk
Residual Risk
Resilience
Resource Risk
Risk
Risk Acceptance
Risk Analysis
Risk Appetite
Risk Awareness
Risk Capacity
Risk Communication
Risk Contingency
Risk Control
Risk Culture
Risk Estimates
Risk Evaluation
Risk Exposure
Risk Impact
Risk Intelligence
Risk Management
Risk Matrix
Risk Measurement
Risk Mitigation
Risk Monitoring
Risk Objectives
Risk Prevention
Risk Probability
Risk Profile
Risk Reduction
Risk Register
Risk Response
Risk Sharing
Risk Taking
Risk Tolerance
Risk Treatment
Risk Trigger
Risk-Reward Ratio
Seasonal Risk
Secondary Risk
Special Risks
Strategy Risk
Tactical Risk
Technology Risk
Unknown Risks
Upside Risk
More ...

## Risk Management

An overview of the risk management process.

An overview of cascading failure and resilience.

An overview of business as usual.

## Risk Mitigation

A list of techniques for reducing risk.

## Risk Mitigation vs Risk Reduction

The difference between risk mitigation and risk reduction.

## Risk Control

A list of common risk controls.

## Risk Impact

The common types of risk impact.

## Risk Communication

A definition of risk communication with examples.

## Risk Management Process

Overview of the steps in a risk management process.

A list of common business risks.

## Risk Treatment

The five things that can be done about risk.

## Positive Risk

The potential that you'll achieve too much of a good thing.

Any risk that people have a strong aversion too.

## Risk vs Opportunity

The surprising similarities between risk and opportunity.

## Risk Management vs Contingency Planning

The difference between risk management and contingency planning.

## Uncertainty

The common types of uncertainty in decision making and strategy.

## Inventory Risk

The common types of inventory risk.

An overview of common business risk management techniques.
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## New Articles

Recent posts or updates on Simplicable.
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