Your organisation is holding it’s annual summer party. This is a big event and management wants the risks assessing.
Here’s how one of the event planners sees the uncertainty around poor weather:
There is a good chance it’ll stay dry but if it rains then we will get really wet, however if it pours then we’re in for a right drenching. I think there is a 50:50 chance it’ll rain, and a 10% chance it will pour. And if it rains one-in-twenty attendees won’t show, but if it pours half those expected will cancel.
Yet here’s how some risk professionals translate that assessment using a risk matrix:
Okay, well I have ‘wet’ down here on the matrix as a 2 and ‘drenching’ down as a 4, so let’s say the impact is a 3 and the probability is what…10% you say…. that’s on the grid as a 2? Are you happy to say the risk is a 6? That’s low overall so nothing to worry about.
Yet the user has given enough information to quantify the risk into two scenarios, optimistic and pessimistic.
In the optimistic scenario: Impact = attendance -5%, Probability = 50%
In the pessimistic scenario: Impact = attendance -50%, Probability = 10%
Now we can calculate both scenarios:
Optimistic: (-0.05 * 0.5) = -0.25 plus Pessimistic: (-0.5 * 0.1) = -0.05
And find the midpoint (-0.25 + -0.05) / 2 = -0.15
Now we can say:
Should the risk event (bad weather) happen, the expected impact will be a fall in attendance of 15%, in the range 5% to 50%.
If the company doesn’t have the appetite for up to 50% not attending there is an opportunity to take the decision, for example, to hire a venue with both indoor and outdoor space.
Party on dudes!
Risk Insights Explorer is the only risk tool specifically designed for undertaking first-pass evaluations of uncertainty, whether for a specific project objective, strategy decision or a more insightful view of potential events over a longer time horizon. Critically it provides robust, transparent estimates and encourages a move away from matrix-based risk ratings.