Knowing the sources of risk in an organization is important. However, in order to focus efforts for maximum benefit, it is necessary to understand two key factors. Specifically: 1) how often will the risk manifest as an actual loss, and 2) what is the severity or consequence of that loss? Table 5.1 places the possible combinations into risk quadrants.
Severity | Frequency |
---|---|
Low Frequency High Severity | High Frequency High Severity |
Low Frequency Low Severity | High Frequency Low Severity |
Most organizations initially focus on the upper right-hand quadrant, where small incremental reductions in risk exposure can have a large impact on the value of the organization.
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