What is risk impact: 

Risk impact refers to the potential consequences and effects of a materialise risk. This is an important part of risk assessment and risk management.  A risk can be defined in various ways. One such definition, provided by Breck, describes risk as the product of two factors:  

Risk = Likelihood X Consequence.  

This raises the question of how to measure both the likelihood and the consequences of a risk. Risk impact can lead to a lot of different consequences within a project. While this article does not focus on how to measure likelihood, the goal of this article is to explore how you could categorise these consequences.  

While there is no standardized method for categorizing consequences, this article will explore four different categories that can be used. It is important to remember that a consequence can be categorized in multiple of these categories at once and that they are interconnected in many ways. These categories are a tool to see the different consequence of risk impact and focus on one of them. 

Health and safety risk: 

Health and safety risk refers to the potential of individuals being exposed to the consequences of a materialized risk. These risks may not only result in physical harm, but it is also crucial to consider psychological harm. The impacts can range from minor and insignificant effects to permanent injuries or even fatalities.  

Financial risk: 

Financial risk focuses on the economic losses as a result of a risk materialized. These losses can arise from incidents that increase project cost, events that reduce financial funding, or a decline in the overall value of the project. The impact can range from minor costs to significant expenses that threaten the project's viability. 

Environmental risk: 

Environmental risk refers to incidents that can influence nature. While a risk can directly impact the project, it may also have indirect effects on the project by first affecting the surrounding environment. These risks could be high pollution or an oil spill among other things. These risks can lead to resistance from the public, loss of founding, or clean-up bills, and that can harm the project. 

Reputational risk: 

Reputational risk refers to the consequences that impact the image of the project, the company, or high-ranking employees. If a risk leads to negative publicity, it can make it more challenging to undertake similar projects in the future and may attract significant public opposition. 

The severity of consequences can vary significantly from one project to another, depending on the seriousness of the risks involved. The consequence of the risk impact can be assessed on one or more of these categories. It is important to remember that there are various other ways to do categorise risk impact. Other factors to consider may include time, quality, strategic, and operational risks. 

To learn more about how to prioritize risk based on consequences and likelihood, check out our other article, "The Risk Matrix and Risk Assessment”. Link: The Risk Matrix and Risk Assessment – RoC Consult ApS  

Source: 

Beredskabsstyrelsen. (2004). Risikoanalyse. I: S.H. Holst & D.B. Hansen (Red.), Håndbog i risikobaseret dimensionering. Beredskabsstyrelsen. 

Haye, J. (2023, April 24). Evitium LTD’s Guide to Risk Impact Analysis.