Likelihood is a component of risk, while risk is a broader concept that combines likelihood with impact.
Based on the provided reference, risk is defined by the combination of impact and likelihood. In simpler terms, risk considers both how likely something is to happen and how bad it would be if it did.
Understanding Risk
Risk represents the potential for something negative to occur that could affect objectives. It isn't just about whether something can happen, but also the potential consequences if it does.
- Risk is often calculated or assessed as: Risk = Likelihood x Impact (or a combination thereof, depending on the methodology).
- The Risk Owner is typically responsible for defining and managing risks.
Defining Likelihood
As stated in the reference, Likelihood represents the probability of a risk event occurring. It quantifies how probable or frequent the undesirable event is expected to be within a specific timeframe or set of circumstances.
- Likelihood can be expressed qualitatively (e.g., High, Medium, Low) or quantitatively (e.g., 10% probability, 1 in 100 years).
- It focuses purely on the chance or frequency of the event itself.
Defining Impact
The reference clarifies that Impact reflects the potential consequences or severity of a risk event. This is what happens if the risk materializes.
- Impact considers the scale of the loss, damage, or negative outcome.
- Impact can be measured in various ways, such as financial loss, reputational damage, safety incidents, or operational disruption.
The Relationship: Likelihood vs. Risk
To illustrate the difference:
- A meteor hitting your house might have a very low likelihood (low probability).
- However, if it did happen, the impact would be catastrophic (very high consequences).
- The risk associated with a meteor strike is therefore the combination of this very low likelihood and very high impact.
Conversely:
- A paper jam in a printer might have a high likelihood (happens often).
- But the impact is typically very low (minor inconvenience, easily fixed).
- The risk associated with a printer paper jam is the combination of high likelihood and low impact, resulting in a relatively low overall risk compared to the meteor strike, even though the likelihood is much higher.
Summary Table
| Feature | Likelihood | Risk |
|---|---|---|
| Definition | Probability of an event occurring. | Potential for loss, damage, or impact (combines likelihood & impact). |
| Focus | How often/likely something will happen. | The potential consequences if something happens, considering how likely it is. |
| Component | A factor used to define risk. | Defined by the combination of likelihood and impact. |
| Example | 10% chance of rain tomorrow. | The potential damage and disruption from rain tomorrow (considering the 10% chance). |
In essence, likelihood is just one piece of the puzzle; risk is the complete picture that considers both the probability and the severity of a potential undesirable event.
