Likelihood of Crisis

Each of these scenarios that have been analyzed, even those with the lower impact outcomes, would cause some level of crisis for the company. As individual risks for the business, they are unlikely events to occur. They have relatively remote likelihoods. For example, the collective chances of the specified trade dispute with any of the four levels of severity in this example are estimated to be around 1-in-20 in a year. The chances of a cyber attack with any of these severities is estimated at 1-in-30 a year. The chances of a damaging flood hitting the key facility is considered to be 1-in-150. Individually each of these scenarios is improbable and it would be understandable if senior management did not become overly concerned about any individual risk on the list. However, they are indicative of the fact that the organization faces many risks with relatively low likelihoods. The six presented here are significant for the company, but by no means represent the entire universe of significant risks that the company faces.

The six scenarios are each individually of low likelihood, but collectively they pose a significant likelihood of the company experiencing a crisis of one sort or another. The scenarios that we have selected are broadly independent – the chance of having to deal with a pandemic outbreak is unrelated to the likelihood of being hit by a cyber attack. There is some chance that some of the scenarios could occur together because of a common background causal factor – for example a trade dispute could lead to financial hardship which might make a pay dispute more likely – but these are weak potential correlations. It is reasonable to expect them to be independent. More than one event could occur in a given year, but that would probably be a coincidence.

The collective annual likelihood of all of the scenarios together is around 1-in-5: there is a 20% chance each year that the company would have to deal with some level of loss from one of these six causes. In the five year projection of the business plan, there is a 71% chance – or roughly two chances out of three, of experiencing a crisis from one of these causes at some time during the five years. There is a small chance that the company could experience multiple crises during the five years and may have even have to deal with several crises in a single year.

So although each individual risk may seem unlikely, the fact that there are many of them means that some type of risk event occurrence can be expected during short term business planning cycles.