The Impact term in the equation will continue to grow in the foreseeable future. And as we’ve learned from Delta to Starbucks, when technology glitches occur, business comes to a grinding halt. Today the Office of the CIO is vital to nearly every process. Digital technology has never played a more important role in business execution, and nearly every business process is dependent on one or more enterprise systems. Said another way, technology benefits and deployments have been rising, but so have dependency and risk. When the right hand side increases, the left hand side increases. The second is to lower their impact on the business.īut “Impact” is going up! If you’re a CIO, the problem here is that the impact of technology is increasing, so technology risk is also increasing.

The first is to reduce the likelihood of unexpected events. But it does provide several useful insights and pinpoints two basic ways to mitigate risk. Is the Risk Equation an oversimplification? Sure. If you put a dollar value on the impact, then you can value the risk and in a simple way compare one risk factor to another.

This means that the total amount of risk exposure is the probability of an unfortunate event occurring, multiplied by the potential impact or damage incurred by the event. If you’ve seen an airline in the news recently, it’s probably been another story of a company brought to its knees by technology risk.įor businesses, technology risk is governed by one equation:

Risk probability impact standford