- 5 Marks
Question
Risk Assessment is a very important activity in an organisation. With the use of a table, relate ‘Impact and Likelihood’ to ‘Objective and Subjective’ risk perception.
Answer
Relating Impact and Likelihood to Objective and Subjective Risk Perception:
Risk assessment plays a crucial role in an organisation, helping to evaluate potential threats. Both impact and likelihood can be perceived objectively or subjectively.
Below is a table illustrating risks where impact and likelihood may be assessed objectively or subjectively:
| Likelihood Measurement | Impact Measurement |
|---|---|
| Objective Likelihood | Objective Impact |
| Quality failure in a batch of components (based on previous manufacturing experience) | Change in interest payments as a result of a 1% increase in interest rates |
| Subjective Likelihood | Subjective Impact |
| An oil well disaster occurring this year in Siberia | Change in revenue due to change in consumer taste |
- Objective Measurement: Refers to using historical or statistical data to evaluate risks.
- Subjective Measurement: Relies on personal judgment and experience, especially when data is unavailable or uncertain.
- Tags: Impact, Likelihood, Risk Management, Risk Perception
- Level: Level 2
- Topic: Risk Management and Corporate Strategy
- Series: MAY 2021
- Uploader: Kwame Aikins