How is risk typically assessed in risk management?

Risk is typically assessed in risk management by analyzing it in terms of frequency and severity. This approach allows organizations to gain a comprehensive understanding of potential risks by evaluating how likely a risk event is to occur (frequency) and the extent of impact or damage it could cause if it does happen (severity). By understanding both aspects, risk managers can prioritize risks effectively and implement appropriate risk mitigation strategies.

Relying solely on financial impact does not provide a full picture of a risk's implications. Similarly, focusing only on historical data overlooks emerging risks and trends that may not have been recorded previously. Using qualitative metrics exclusively can also lead to a subjective analysis that might miss quantifiable risks. Therefore, the combination of frequency and severity offers a balanced and analytical framework essential for effective risk management.