What is the formula used in FAIR to calculate risk?

The formula used in FAIR to calculate risk is based on understanding the relationship between different components of risk associated with potential loss events. The correct formula, which is Loss Event Frequency multiplied by Probable Loss Magnitude, provides a clear and quantitative approach to risk assessment.

In this context, Loss Event Frequency refers to how often a loss event is expected to occur, while Probable Loss Magnitude estimates the financial impact of that event when it does occur. By multiplying these two figures, you arrive at a metric that allows risk professionals to quantify risk in a way that integrates both the likelihood of loss and its potential severity. This calculation enables organizations to prioritize risks and make informed decisions about where to allocate resources for risk mitigation efforts.

Other formulas presented do not accurately capture the risk calculation process as outlined in the FAIR framework, which emphasizes both frequency and the financial consequences of loss events. Therefore, this formula is essential for conducting a proper risk analysis aligned with the FAIR methodology.