In risk management, what does "impact" refer to?

In risk management, "impact" specifically refers to the severity of loss or damage that could result from the occurrence of a risk event. This concept is crucial for organizations as they evaluate potential risks, allowing them to prioritize which risks require more immediate attention based on the extent of their consequences. In essence, understanding the impact enables decision-makers to assess the significance of various risks to the organization.

For instance, if a particular risk could lead to significant financial losses, reputational damage, or legal implications, its impact would be considered high. Conversely, a risk that results in minor inconveniences would have a low impact. Recognizing the impact is essential not only for risk assessment but also for the development of risk mitigation strategies.

The other options indicate aspects of risk management that are important but do not accurately define "impact." The possibility of a risk occurring reflects its likelihood or probability, whereas the documentation required pertains to the processes involved in managing risks. The likelihood of human error is also associated with potential risks but does not address the consequences that arise if those risks materialize. Understanding these distinctions is vital for effective risk management practices.