What formula is used in ORM to assess risk?

The correct formula for assessing risk in Operational Risk Management (ORM) is the combination of Severity, Probability, and Exposure. This approach provides a comprehensive understanding of risk by evaluating how severe the consequences of an event could be, how likely that event is to occur, and the level of exposure to that risk.

Severity refers to the potential impact or harm that an event may cause, while Probability assesses how often that event may happen. Exposure measures the degree to which an individual, organization, or operation is susceptible to that risk. By including all three components, the formula gives a more accurate risk assessment that aids in effective decision-making and prioritization of risk mitigation strategies.

In contrast, other formulas listed do not capture the full aspect of risk assessment as effectively. Although they focus on relevant elements, they either simplify the situation or mix different components that are not standard in ORM practices. For instance, combining just severity and probability neglects the critical factor of exposure, which is essential in understanding the real-world implications of risk.