Council of Supply Chain Management Professionals (CSCMP) 2025 – 400 Free Practice Questions to Pass the Exam

The risk index is calculated by multiplying the impact by the probability. This methodology allows for a quantitative assessment of risk by considering both how likely an event is to occur and the seriousness or severity of its consequences if it does occur.

By using multiplication, the formula emphasizes that a high impact event that is also highly probable will result in a significantly higher risk index compared to events that are unlikely to happen, even if they have a high potential impact. This approach provides a more nuanced understanding of risk, as it captures both dimensions — the likelihood of occurrence and the potential impact — in a single numerical value, which enables better prioritization and planning in risk management strategies.

In contrast, simply adding impact and probability would not effectively represent the relationship between these two factors, as it treats them as equally weighted, which can mislead risk assessment. Averaging all identified risks or ranking them does not provide a clear numerical assessment that combines both impact and probability; these methods could overlook significant event combinations that a multiplicative approach highlights.