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Probability Impact Analysis

Probability impact grid analysis involves assigning risk scores by combining probability and impact ratings on a grid. Simply multiplying or adding the row and column indices may not accurately represent expected value, since the ranges for probability and impact levels may not be equal in size. A better approach is to assign an approximate midpoint to each level and use those values to calculate risk scores.

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Chinh Lê Đình
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142 views8 pages

Probability Impact Analysis

Probability impact grid analysis involves assigning risk scores by combining probability and impact ratings on a grid. Simply multiplying or adding the row and column indices may not accurately represent expected value, since the ranges for probability and impact levels may not be equal in size. A better approach is to assign an approximate midpoint to each level and use those values to calculate risk scores.

Uploaded by

Chinh Lê Đình
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLS, PDF, TXT or read online on Scribd
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Probability Impact Grid analysis

Probabilty Impact grids are very common in risk management/internal control and it is also common to
assign a summary risk score by combining the 'probability' and 'impact' ratings.
This is often done by multiplying (occasionally adding) row and column indices. What most people probably
think that gives them is a sort of expected value for the risk e.g. 50% likely to happen and will cost 1,000
units if it does so the expected value is 0.50 x 1,000 = 500.
However, if you have defined the ranges for each level of probability and impact so that they are not the
same size you will probably find that multiplying the indices does not give you the expected value you
imagined. For example if your ranges grow by a multiple each time then you would need to add the indices
to get the right ranking.
This kind of mathematical blunder means that risks are ranked in the wrong order, and some risks are
included/excluded for upwards escalation when they should not be.
If you want to see if any of this applies to your risk rating design and you've used a 5 x 5 matrix then use the
'analysis' worksheet.
In fact, if your matrix is not 5 x 5 you can still put in as much as will fit and see what it tells you.
Most people will find that it is surprisingly difficult to engineer a satisfactory risk summary score using
indices. It is better to assign an approximate 'mid point' to each probability level and each impact level and
use that instead.
When choosing a 'mid' point do not take the average of the upper and lower limits of the level unless the
levels are all of equal size. In the analysis spreadsheet I've used the ratio of the range's size and that of an
adjacent range to fix a 'mid' point. This roughly agrees with more sophisticated calculations done by fitting
beta distributions to actual risk register data.

Probabilty Impact Grid mathematics - does yours work as you expect?

Yellow areas are editable. Coloured grids below show where the ranking of risks using expected values differs from
Expected value using lowest corner of each cell
Lower Upper
Prob
0.1
1
0.01
0.1
0.001 0.01
0 0.001
0
0

Index
5
4
3
2
1
Index
Upper
Lower

0
0
0
0
0
1
5
0

0.5
0.05
0.005
0.0005
0
2
50
5

5
0.5
0.05
0.005
0
3
500
50

Rank order

50
5
0.5
0.05
0
4
5000
500

500
50
5
0.5
0
5
50000
5000

17
17
17
17
17

7
11
14
16
17

0
0
0
-1
-1

0
0
-1
-2
1

High EV rank - multiplied indice


-5
-2
-2
-1
-1
2
0
2
0
0

0
0
0
0
6

High EV rank - added indices ra


0
0
0
0
0
0
0
0
0
0

Imp

Low EV rank - multiplied indices rank


1
-2
-1
-1
-1
0
-4
0
0
-6
-2
0
-8
-6
-4

Low EV rank - added indices rank


6
0
0
1
0
0
-3
-2
0
-6
-4
-2
-8
-6
-3

0
0
0
0
1

Expected value using highest corner of each cell


Lower Upper
Prob
0.1
1
0.01
0.1
0.001 0.01
0 0.001
0
0

Index
5
4
3
2
1
Index
Upper
Lower

5
0.5
0.05
0.005
0.0005
1
5
0
Imp

50
5
0.5
0.05
0.005
2
50
5

500
50
5
0.5
0.05
3
500
50

5000
500
50
5
0.5
4
5000
500

50000
5000
500
50
5
5
50000
5000

Expected value using 'mid' points of each cell


Prob

Mid
0.182
0.018
0.002
0
###

Index
5
4
3
2
1
Index

0.090909
0.009091
0.000909
0.000095
0.000005
1

1.727273
0.172727
0.017273
0.001805
0.000095
2

16.52893
1.652893
0.165289
0.017273
0.000909
3

165.2893
16.52893
1.652893
0.172727
0.009091
4

1652.893
165.2893
16.52893
1.727273
0.090909
5

Rank order
11
16
20
23
25

7
11
16
20
23

Rank order
15
18
21
23
25

8
11
16
20
23

Mid

0.5

9.5 90.90909 909.0909 9090.909

Imp

Score by multiplying index numbers


Lower Upper
Prob
0.1
1
0.01
0.1
0.001 0.01
0 0.001
0
0

Index
5
4
3
2
1
Index
Upper
Lower

5
4
3
2
1
1
5
0

10
8
6
4
2
2
50
5

15
12
9
6
3
3
500
50

Rank order
20
16
12
8
4
4
5000
500

25
20
15
10
5
5
50000
5000

16
18
21
23
25

9
12
14
18
23

Imp

Score by adding index numbers


Lower Upper
Prob
0.1
1
0.01
0.1
0.001 0.01
0 0.001
0
0

Index
5
4
3
2
1
Index
Upper
Lower

6
5
4
3
2
1
5
0
Imp

7
6
5
4
3
2
50
5

8
7
6
5
4
3
500
50

Rank order
9
8
7
6
5
4
5000
500

10
9
8
7
6
5
50000
5000

11
16
20
23
25

7
11
16
20
23

g expected values differs from that using row and column indices added or multiplied.

4
7
11
14
17

2
4
7
11
17

1
2
4
7
17

igh EV rank - multiplied indices rank


-1
0
0
0
0
0
0
0
-1
2
-1
-2
-1
-2
-5

igh EV rank - added indices rank


0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

4
7
11
16
20

2
4
7
11
16

1
2
4
7
11

5
9
13
16
21

3
5
9
11
18

1
2
4
7
14

5
7
11
14
21

2
4
7
12
18

1
2
5
9
16

4
7
11
16
20

2
4
7
11
16

1
2
4
7
11

Mid EV rank - multiplied indices rank


-1
-1
0
1
0
0
-1
2
1
0
0
2
2
2
-1
0
2
2
-1
-2
0
0
0
0
-2

Mid EV rank - added indices rank


4
1
1
1
0
2
0
2
1
0
1
0
2
2
0
0
0
0
0
0
0
0
1
2
3

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