What formula represents the concept of Risk?

The concept of Risk is fundamentally understood as the potential for loss or adverse outcomes in any given situation. To quantify risk mathematically, the most accepted approach involves evaluating both the likelihood of an event occurring and the impact that event would have if it did occur.

In this context, the correct formulation—Likelihood multiplied by Impact—effectively captures the essence of Risk management. Here, likelihood represents the probability of a specific event occurring, while impact denotes the potential consequences or severity associated with that event. When you multiply these two factors together, you derive a numeric value that reflects the overall risk associated with that scenario. This dual consideration ensures that both the probability of occurrence and the scale of potential consequences are taken into account, providing a comprehensive picture of risk.

Understanding this equation is critical in decision-making and in devising strategies to mitigate risk. It highlights that even a low-probability event can be deemed a significant risk if its potential impact is severe enough, or conversely, a high-probability event with low impact may be considered negligible in terms of risk.

In contrast, the other formulations do not accurately capture this dual nature of risk. For instance, while adding or summing factors may seem intuitive, it fails to represent the multiplicative relationship between