Risk can be defined as the combination of the probability that an event will occur and the severity and nature of its consequences if it does.

Consequently, a Risk Map tool consists of the following elements/ parameters:

Likelihood: is an estimate of how frequently a specific risk event could appear

Impact: is an estimate of how much a specific risk event would affect the Company’s financial results. 

If the risk is materialized, the effect may be either direct loss (e.g. loss of money due to fraud or theft) or indirect loss (e.g. payment of fine, payment of compensation).

The 5×5 Heat Map diagram below provides an illustration of how organizations can map probability ranges (i.e.  Rare, Unlikely, Possible, Likely or Certain), as well as a ranking scheme for potential impacts (i.e. Negligible, Minor, Moderate, Major or Catastrophic). 

Risks are prioritized using a simple multiplication formula (= Likelihood x Impact).