Calculating inherent risk
Become familiar with the calculations associated with inherent risk and view an example of calculating inherent risk.
How it works
Once you assess inherent risk, the Strategy app automatically calculates inherent risk.
| Term | How it is calculated |
|---|---|
| Inherent Risk Score |
All risk scoring factors together are multiplied together, with each risk scoring factor multiplied by its assigned weight. The scoring framework is based on your company's risk scoring settings. |
| Inherent Risk | The Inherent Risk Score of each assessed operating segment is summed. |
| Inherent Risk Heat | The Inherent Risk is divided by the total possible Inherent Risk Score across all operating segments specified in your Strategy Map. |
Example
Scenario
You have assessed the inherent risk associated with a SOX Compliance risk for your company as follows:
Strategy Map
There are 9 operating segments in your Strategy Map: Canada, Italy, India, Japan, Thailand, China, Brazil, United Kingdom, and United States of America.
Risk scoring framework
You assess inherent risk using the following risk scoring framework:
| Risk Scoring Factor | Weight | Severity Scale |
|---|---|---|
| Likelihood | 100% | 3 point scale (1 = Low, 2 = Medium, 3 = High) |
| Impact | 100% | 3 point scale (1 = Low, 2 = Medium, 3 = High) |
| Velocity | 70% | 3 point scale (1 = Low, 2 = Medium, 3 = High) |
| Vulnerability | 60% | 3 point scale (1 = Low, 2 = Medium, 3 = High) |
Inherent Risk Score and Inherent Risk calculations
All calculations are rounded to the nearest tenth.
- Canada (1 x 100%) x (3 x 100%) x (2 x 70%) x (3 x 60%) = 7.6
- Italy (2 x 100%) x (2 x 100%) x (2 x 70%) x (1 x 60%) = 3.4
- Japan (3 x 100%) x (3 x 100%) x (2 x 70%) x (1 x 60%) = 7.6
- China (2 x 100%) x (2 x 100%) x (3 x 70%) x (3 x 60%) = 15.1
- Thailand (3 x 100%) x (3 x 100%) x (1 x 70%) x (2 x 60%) = 7.6
- United States of America (1 x 100%) x (1 x 100%) x (1 x 70%) x (3 x 60%) = 1.3
7.6 + 3.4 + 7.6 + 15.1 + 7.6 + 1.3 = 42.6 (Inherent Risk)
Inherent Heat calculation
- The total possible Inherent Risk Score for a single operating segment is 34.02 ((3 x 100%) x (3 x 100%) x (3 x 70%) x (3 x 60%)).
- The total possible Inherent Risk Score across all operating segments is 306.18 (34.02 x 9).
Inherent Risk (42.6) / total possible Inherent Risk Score (306.18) = Inherent Risk Heat (13.9%).
Values displayed in the risk tile
Within Risk Profile, the Inherent Risk and Inherent Risk Heat values display to left of each risk tile.
- The top number represents the Inherent Risk across all operating segments associated with the risk.
- The bottom number represents the Inherent Risk Heat.
