In risk management language, which term is defined as the chance of a negative outcome/consequence?

• A. Risk
• B. Severity
• C. Likelihood
• D. Holding Principle

Answer: (A)

In risk management, risk is the presence of a negative event coupled with its potential consequences. It isn’t just about how likely something bad is, but about the combination of that likelihood and how severe the impact could be. That’s why risk is the best term for “the chance of a negative outcome/consequence”—it captures both the probability and the potential harm. By contrast, likelihood refers only to how probable the event is, while severity refers to how bad the outcome would be if it occurs. A simple way to think about it is that risk blends probability with impact, often expressed conceptually as risk equals likelihood times severity. For example, a 10% chance of a breach with potential losses of $50,000 represents a certain level of risk, not just a probability or just a cost.