How is risk typically quantified?

Risk is typically quantified by assessing the likelihood of occurrence and the impact of the risk. This approach is foundational in risk management because it provides a systematic method to evaluate potential risks that an organization may face. By estimating how likely a risk is to occur and determining the consequences if that risk materializes, organizations can prioritize their risk management efforts effectively.

This quantification process allows risk assessors to categorize risks based on their relative significance, which aids in developing strategies to mitigate them. For example, a risk that has a high likelihood of occurring and a severe impact is prioritized over a risk that is less likely to occur or has a minimal impact. This method is essential for creating an effective risk management framework and ensures that resources are allocated efficiently to address the most pressing risks.

The other options focus on different aspects of risk management but do not directly quantify risk in the way that assessing likelihood and impact does. Estimating costs of risk management solutions, evaluating past incidents, and comparing against benchmarks may provide useful information but do not establish the probability and potential effects of risks in a quantifiable manner.