What differentiates risk likelihood from risk impact?

The distinction between risk likelihood and risk impact is fundamentally based on their definitions. Risk likelihood refers to the probability of a specific risk event occurring. It assesses how probable it is that a defined risk will manifest based on historical data, expert judgment, or statistical analysis. On the other hand, risk impact focuses on the consequences or effects that would occur if the risk were to happen. It evaluates the severity of the outcome when the risk materializes, determining how significantly it would affect the organization, project, or situation in question.

Understanding this difference is crucial for effective risk management because it allows organizations to prioritize risks not just based on how likely they are to happen, but also based on how damaging they could be if they do occur. By clearly differentiating these aspects, risk managers can develop targeted strategies to mitigate risks more effectively, balancing the likelihood of occurrence with the potential impact on objectives.