legal-risk-assessment-severity-x-likelihood-matrix

# Severity x Likelihood Matrix (+2)

## Severity x Likelihood Matrix


Legal risks are assessed on two dimensions:

**Severity** (impact if the risk materializes):

| Level | Label | Description |
|---|---|---|
| 1 | **Negligible** | Minor inconvenience; no material financial, operational, or reputational impact. Can be handled within normal operations. |
| 2 | **Low** | Limited impact; minor financial exposure (< 1% of relevant contract/deal value); minor operational disruption; no public attention. |
| 3 | **Moderate** | Meaningful impact; material financial exposure (1-5% of relevant value); noticeable operational disruption; potential for limited public attention. |
| 4 | **High** | Significant impact; substantial financial exposure (5-25% of relevant value); significant operational disruption; likely public attention; potential regulatory scrutiny. |
| 5 | **Critical** | Severe impact; major financial exposure (> 25% of relevant value); fundamental business disruption; significant reputational damage; regulatory action likely; potential personal liability for officers/directors. |

**Likelihood** (probability the risk materializes):

| Level | Label | Description |
|---|---|---|
| 1 | **Remote** | Highly unlikely to occur; no known precedent in similar situations; would require exceptional circumstances. |
| 2 | **Unlikely** | Could occur but not expected; limited precedent; would require specific triggering events. |
| 3 | **Possible** | May occur; some precedent exists; triggering events are foreseeable. |
| 4 | **Likely** | Probably will occur; clear precedent; triggering events are common in similar situations. |
| 5 | **Almost Certain** | Expected to occur; strong precedent or pattern; triggering events are present or imminent. |


## Risk Score Calculation


**Risk Score = Severity x Likelihood**

| Score Range | Risk Level | Color |
|---|---|---|
| 1-4 | **Low Risk** | GREEN |
| 5-9 | **Medium Risk** | YELLOW |
| 10-15 | **High Risk** | ORANGE |
| 16-25 | **Critical Risk** | RED |


## Risk Matrix Visualization


```
                    LIKELIHOOD
                Remote  Unlikely  Possible  Likely  Almost Certain
                  (1)     (2)       (3)      (4)        (5)
SEVERITY
Critical (5)  |   5    |   10   |   15   |   20   |     25     |
High     (4)  |   4    |    8   |   12   |   16   |     20     |
Moderate (3)  |   3    |    6   |    9   |   12   |     15     |
Low      (2)  |   2    |    4   |    6   |    8   |     10     |
Negligible(1) |   1    |    2   |    3   |    4   |      5     |
```