Two things are true when it comes to making important decisions that affect your company: You need a way to quantify risk to make the best choice, and you need to be able to explain that choice. A risk matrix helps you do both.

Calculating risk across various outcomes can give you clear guidelines on whether the risk is acceptable or unacceptable. Let’s take a look at the process.

How a risk matrix works

In simple terms, risk is defined as the probability of an event multiplied by its impact. Levels of probability and impact can be broken up into verbal and numerical scales like so:

The risk matrix then plots these variables in a color-coded chart to show overall risk for different situations:

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