Risk Management

Example: Given information on two threat types in the table below, an organization should prioritize protection against Threat 2 because its risk, which we calculate to be 0.02 * 550,000 = 11,000, is greater than the risk imposed by Threat 1, which is 0.91 * 10,000 = 9100, despite Threat 1's probability to occur being much higher:

Threat	Probability of Happening	Cost of Damage
Threat 1	0.91	$10,000
Threat 2	0.02	$550,000

Fun Class Activity: Which two of the following three threats should receive a company's greatest attention?

Threat	Probability of Happening	Cost of Damage
Threat X	0.36	$100,000
Threat Y	0.59	$89,000
Threat Z	0.21	$250,000