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How to Assess Risk
Summary: Use this step-by-step guide to assess the level of risk associated with a desired purchase.
Risk is defined as the probability that an outcome which is not desired by the organization will occur.
| What to do: |
How to do it: |
| 1 |
Determine the likelihood that a loss will occur as a result of the purchase. |
Understand the "who", "what", "how", "when" and "where" of the proposed purchase contract. See the Risk Assessment Overview. |
| 2 |
Estimate the frequency of an undesired outcome. |
Frequency is the number of times an undesired outcome occurs in a given period of time. |
| 3 |
Evaluate how severe the loss will be, if it occurs. |
Severity is the degree of impact of an undesired outcome on an organization's financial, property and human resources. |
| 4 |
Calculate the risk. |
RISK = FREQUENCY X SEVERITY. Results range from Low to Medium to High Risk. (Use your results from steps 2 and 3 for this decision.)
Review the Frequency versus Severity Matrix. |
Last revised: January 17, 2007 (am)
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